FIFTEENTH INTERNATIONAL MARITIME LAW ARBITRATION MOOT COMPETITION 2014 MEMORANDUM FOR THE RESPONDENTS IN THE MATTER OF AN ARBITRATION BETWEEN.

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1 FIFTEENTH INTERNATIONAL MARITIME LAW ARBITRATION MOOT COMPETITION 2014 MEMORANDUM FOR THE RESPONDENTS IN THE MATTER OF AN ARBITRATION BETWEEN RELIABLE TANKERS INC Claimants and SUPER CHARTERS Respondents TEAM NO. 2 CHU, Joshua Allen Kiu Wah YIM, Choi Wai Bridget SO, Lok Kan HUI, Ka Lam pg.

2 pg. TEAM 2 RESPONDENTS MEMORANDUM

3 TABLE OF CONTENTS LIST OF ABBREVIATIONS...III LIST OF AUTHORITIES...III SUMMARY OF FACTS...1 ARGUMENTS...3 I. The Tribunal Has No Jurisdiction to Hear this Dispute....3 A. The CLAIMANTS failed to commence the arbitration proceedings within the period stipulated by the time bar clause....3 B. The Arbitration is not properly constituted....4 (i) The arbitration cannot proceed in the name of the CLAIMANTS who is a non-existing party... 4 (ii) In any case, the arbitration agreement does not apply to the third party, RHI....5 II. There was No Valid Cancellation of the Charter-party....7 A. The RESPONDENTS notice of cancellation was only a notification of intention of exercising its right of laycan....7 (i) The RESPONDENTS act on 27 th November was a mere declaration of its intent to exercise its legal right to cancel upon date of laycan...8 (ii) Alternatively, the CLAIMANTS cannot be allowed to argue that the notice of cancellation was premature....8 (iii) The CLAIMANTS act was also an implied repudiation of contract....9 (iv) The CLAIMANTS breached the Charter-party when they failed to proceed with reasonable dispatch (v) The CLAIMANTS also breached the time is of the essence clause B. The RESPONDENTS argue that the premature cancellation was unilaterally made by the CLAIMANTS (i) The CLAIMANTS refused to issue revised laycan and ETA (ii) The CLAIMANTS attempted at unilateral cancellation C. Cancellation by the CLAIMANTS was never accepted by the RESPONDENTS III. Alternatively, Even If the Charter-party was Deemed Validly Cancelled, CLAIMANTS are Still Not Entitled to the Freight A. CLAIMANTS are not entitled to the freight (i) In breach of the Charter-party, the CLAIMANTS failed to commence the approach voyage to comply with her laycan (ii) The CLAIMANTS also breached their obligations under the narrowed laycan pg. I

4 B. In any event, the Deemed Earned Clause is invalid C. The RESPONDENTS contend that Clause 4 (the Deemed Earned ) clause is contradictory to the object of the Charter-party (i) The Deemed Earned Clause is contradictory to the laycan clause (ii) Deemed Earned Clause Contradicts Nature of Existing Charter-party (iii) In any event, as the Deemed Earned Clause is contradictory to business efficacy and the clause should be struck out as the Charter-party cannot operate with existence of it IV. The RESPONDENTS are Entitled to Damages, Interests and Costs A. Missing the laycan is not within the usual course of things. Rather, CLAIMANTS assumed responsibility for the consequences of the delay when both CLAIMANTS and RESPONDENTS contracted with each other B. Alternatively, the RESPONDENTS are entitled to the amount of freight by way of claiming damages C. The CLAIMANTS cannot claim damages D. Alternatively, based on the doctrine of equitable set-off and the RESPONDENTS counter-claims, it is unjust to allow the CLAIMANTS any relief PRAYERS FOR RELIEF...23 pg. II

5 LIST OF ABBREVIATIONS Reliable Tankers Inc. Reliable Holdings Inc. Reliable Butterfly ASBATANKVOY FORM 1977 together with fixture re-cap RTI RHI The Vessel The Charter-party LIST OF AUTHORITIES BOOKS C Ambrose, K Maxwell and A Parry, London Maritime Arbitration (3rd edn, Informa Law 2009) David St John Sutton, Judith Gill and Matthew Gearing, Russell on Arbitration (23rd edn, Sweet & Maxwell 2010) HG Beale and others (eds), Chitty on Contracts: Vol 1 General Principles (31st edn, Sweet & Maxwell 2012) Julian Cooke and others, Voyage Charters (3rd edn, Informa Law 2007) Stavros L Brekoulakis, Third Party in International Commercial Arbitration (Oxford University Press 2010) CASES NEW ZEALAND CASE Murphy v Zamonex [1993] 31 NSWLR 439 UK CASES AS Tankexpress v Compagnie Financiere Belge Des Petroles SA [1948] 2 All ER 939 Bowes v Shand [1877] 2 App Cas 455(HL) Bulk Carriers Ltd v Andre Et Cie SA [2001] EWCA Civ 588 Colonial Bank (Now Bank of Boston Connecticut) v European Grain & Shipping Ltd pg. III

6 (The Dominique ) [1989] 1 Lloyd s Rep 431 Cort and Gee v Ambergate Nottingham and Boston Eastern Junction Railway Co (1851) 17 QB 127, 144 Currie v Misa (1875) LR 10 Ex 153, 162 Dakin v Oxley (1864) 15 CB (NS) 646 Director General of Fair Trading v First National Bank plc [2001] UKHL 52 Fercometal SARL v Mediterranean Shipping Co. S.A. [1989] 1 AC 788, 799 Fercometal SARL v Mediterranean Shipping Co SA ( The Simona ) [1986] 1 Lloyd's Rep 171 Fortress Value Recovery Fund I LLC v Blue Skye Special Opportunities Fund LP [2013] EWCA Civ 367 Frost v Knight ( ) LR 7 Ex 111, 114 FT Mackley & Co Ltd v Gosport Marina Ltd [2002] EWHC 1315 Geogas SA v Trammo Gas Ltd (The Baleares ) [1991] 2 QB 139 Hochster v De La Tour (1853) 2 E & B 678 Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Internaut Shipping GmbH v Fercometal SARL (The Elikon ) [2003] EWCA Civ 812; [2003] 2 Lloyd s Rep 430 James v Commonwealth [1992] 37 FCR 445, 459 Jones v Barkley [1781] 99 ER 434 Lombard North Central v Butterworth [1987] QB 527 M Andrew v Adams [1834] 1 Bing NC 29 Mansel Oil & VITOL S.A. v Troon Storage Tankers SA [2009] EWCA Civ 425 Marbienes Compania Naviera SA v Ferrostaal AG (The Democritos ) [1976] 2 Lloyd's Rep 149 pg. IV

7 Marquis of Cholmondeley v Clinton (1820) 2 Jac & WI 91 Metalfer Corporation v Pan Ocean Shipping Co Ltd [1998] 2 Lloyd s Rep 632 Ocean Tramp Tankers Corp. v V/O Sovfracht (The Eugenia ) [1964] 2 QB 226, 227 Samsun Logix Corporation v Oceantrade Corporation [2007] EWHC 2372 (Comm); [2008] 1 Lloyd s Rep 450 Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Group Corp [2000] 1 Lloyd s Rep 339 Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas ) [2008] UKHL 48 pg. V

8 SUMMARY OF FACTS 1. On 19 th November, the CLAIMANTS, Reliable Tanker Inc. ( RTI ) entered into a voyage charter party agreement ( the Charter-party) with the RESPONDENTS, Super Charters. 1 The agreement was in the standard ASBATANKVOY 1977 form with necessary alterations pursuant to a fixture recap. 2 It was purported to have incorporated amendments proposed by the parties. 2. The parties agreed that the CLAIMANTS shall provide the Reliable Butterfly, 3 for the purpose of transporting crude oil from the loading port of Blueland (1/2 SP BLUELAND) to the discharging port of Indigoland (1/2 SP INDIGOLAND) It was further agreed by the parties that should any disputes arise, the parties would participate in arbitration as per the agreed amended Clause While the Reliable Butterfly was in transit to the loading port, she was arrested by a third party, the bunker suppliers. 6 Consequently, the Reliable Butterfly was no longer able to meet her laycan, which was scheduled on 5 th December Despite the fact the CLAIMANTS were aware of the fact that the Reliable Butterfly was no longer able to meet her laycan, the CLAIMANTS still refused to provide the RESPONDENTS with a properly revised laycan, 8 leaving the RESPONDENTS with no 1 Facts Facts Facts Facts 2, 4. 5 Facts 6. 6 Facts Facts Facts 95. pg. 1

9 other option but to remind the CLAIMANTS of the automatic right of cancellation should the Reliable Butterfly still fail to meet her laycan However, as a result of the CLAIMANTS continuing breach of the Charter-party, RESPONDENTS now claim for damages arising from the aforesaid breach Subsequently, the RESPONDENTS discovered that the CLAIMANTS had undergone a merger and thereby ceased to exist. 11 The arbitration was commenced on 28 th January after which RTI had ceased to exist Throughout the pre-arbitration process, RESPONDENTS had repeatedly asserted that there were no proper CLAIMANTS, a fact promptly ignored by Reliable Holdings Inc. ( RHI ) Facts Facts Facts Facts Facts 102. pg. 2

10 ARGUMENTS I. The Tribunal Has No Jurisdiction to Hear this Dispute. 1. RESPONDENT argues that this tribunal does not have the jurisdiction to hear this dispute because (A) the CLAIMANTS failed to commence the arbitration proceedings within the period stipulated by the time bar clause and (B) this arbitration is not properly constituted. A. The CLAIMANTS failed to commence the arbitration proceedings within the period stipulated by the time bar clause. 2. Pursuant to Clause 4 of the RESPONDENTS standard terms, the provision stipulated that [a]ll claims against Super Charters must be notified to Super Charters within 10 days of discharge/re-delivery and any suit or proceedings must be commenced within a further 10 days thereafter. 14 Therefore, the contractually stipulated time limit for the parties to initiate the proceedings is 20 days from the expected discharge date. It can therefore be inferred that the parties agreed time is of the essence for the commencement of arbitration. Since the expected discharge date is 10 th January, th January is the last date by which the parties can commence arbitration proceedings. 3. Furthermore, the said time bar clause is applicable to this arbitration proceedings as the arbitration clause explicitly stated that all claims against Super Charter must be notified to Super Charters within 10 day. 16 The wordings clearly show that it referred to every dispute involving the parties. 17 As such, the CLAIMANTS could not simply ignore this contractual obligation. 14 Facts Facts Facts David St John Sutton, Judith Gill and Matthew Gearing, Russell on Arbitration (23rd edn, Sweet & Maxwell 2010) 191 para pg. 3

11 4. According to the facts, it is clear that the CLAIMANTS initiated these arbitration proceedings long after the agreed time frame. Considering Clause 4 of the RESPONDENTS standard terms, arbitration is no longer available as a dispute resolution mechanism for the CLAIMANTS. As observed by Longmore J in Metalfer Corporation v Pan Ocean Shipping Co. Ltd., 18 that the arbitration clause will no longer be available should the parties miss the time bar. B. The Arbitration is not properly constituted. 5. Pursuant to section 30 of the Arbitration Act of 1996, the Tribunal has the competence to rule on its own substantive jurisdiction. It is the RESPONDENTS position that the Tribunal has no jurisdiction to hear the case on the grounds that (i) the arbitration cannot proceed in the name of the CLAIMANTS whom is a non-existing party; (ii) in any case, the arbitration agreement does not apply to the third party, the RHI; and (iii) the parties have not consented to arbitration. (i) The arbitration cannot proceed in the name of the CLAIMANTS who is a non-existing party. 6. The fact that the CLAIMANTS had ceased to exist as an entity by the time the arbitration proceedings were initiated places the arbitration agreement at a nullity. 19 Considering the abovementioned factor, along with the fact that RHI is not a party to any arbitration clause agreed with the RESPONDENTS, this arbitration proceeding cannot be resumed any further. 7. RESPONDENTS also argue the present situation is similar to The Elikon. 20 In this case, Internaut was a party to the arbitration agreement signed with Fercometal and was wrongfully named as Sphinx Navigation Ltd., Liberia c/o Internaut Shipping GmbH. 21 As a result, it was held that the Internaut was the only party to the arbitration agreement in the proceeding. It was 18 [1998] 2 Lloyd s Rep David St John Sutton (n17) para Internaut Shipping GmbH v Fercometal SARL (The Elikon ) [2003] EWCA Civ 812; [2003] 2 Lloyd s Rep ibid para 1. pg. 4

12 further noted by the tribunal that the naming of Sphinx in the claimant submissions had not been a mere misnomer but should instead be jurisdictionally nullified. Rix LJ stated that the identification of Sphinx as the arbitrating party goes beyond a case of mere misnomer then the consequence must be that the further conduct of the arbitration in the name of the claimant who was never in truth a party to the charter-party or to the arbitration agreement was a nullity. 22 Here, since the CLAIMANTS are no longer an existing entity, they are never in truth a party to the arbitration agreement. It is not simply an error in naming the party as such it goes beyond a mere misnomer. 23 (ii) In any case, the arbitration agreement does not apply to the third party, RHI. 8. It is the RESPONDENTS position that the facts have clearly shown that RHI was never a party to any arbitration agreement, allowing RHI to partake in this arbitration proceeding is contrary to the established legal principle of privity of contract. 24 As a consequence, this tribunal lacks the jurisdiction to adjudicate on the matter Additionally, RHI cannot enforce the contract as a third party. The general rule is that contract, including arbitration agreements, can only be enforced by or against parties to them. 26 It is the RESPONDENTS position that RHI cannot rely on section 8(2) of the Contracts (Right of Third Parties) Act While this act is enacted in a bid to protecting the rights of third party beneficiary, pursuant to Fortress Value Recovery Fund I LLC v Blue Skye Special Opportunities Fund LP, 27 section 8(2) is only applicable where the contract on its true construction gives to their party a right to arbitrate. The statue clearly provided that where a right conferred to a third-party beneficiary is subject to a valid arbitration clause, the third 22 ibid para David St John Sutton (n17) para HG Beale and others (eds), Chitty on Contracts: Vol 1 General Principles (31st edn, Sweet & Maxwell 2012) para C Ambrose, K Maxwell and A Parry, London Maritime Arbitration (3rd edn, Informa Law 2009) ibid [2013] EWCA Civ 367 para 31. pg. 5

13 party shall be treated as a party to that arbitration clause as regards disputes between the third party and the promisor To determine whether a proper construction was constituted, the tribunal must examine Clause 24 of the Charter-party, which states that [a]ny disputes of whatsoever nature arising out of this Charter shall be put to arbitration.consisting one arbitrator appointed by the Owner, one by the Charterer, and one by the two so chosen. 29 Upon examining the aforesaid provision, it is clear that the parties intended to prevent third parties from relying on such arbitration agreement. Therefore, only the CLAIMANTS and the RESPONDENTS are entitled to the right to arbitrate. RHI cannot rely on section 8(2) of the Contracts (Right of Third Parties) Act 1999 to arbitrate against the RESPONDENTS. 11. Alternatively, even if RHI is allowed to participate in this arbitration proceeding, there will be complications with the enforcement of any awards declared by the arbitration tribunal. It is well-established under English law that arbitration award are only binding on the parties that consented to the arbitration. 30 This doctrine is upheld by the recent decision made by the Commercial Court in the case of Samsun Logix Corporation v Oceantrade Corporation, 31 where it was held that an arbitration award purporting to determine the ownership of an asset is ineffective when there was a third party claimant, who was not a party to the arbitration. The reason behind this decision is because an arbitration award can only be binding on parties to the arbitration proceedings. Since the CLAIMANTS are the only proper party to this arbitration, coupled with the fact that they no longer exist, RHI as a third party cannot enforce any arbitration award made by this tribunal, making this entire arbitration process a nugatory act. 28 Stavros L Brekoulakis, Third Party in International Commercial Arbitration (Oxford University Press 2010) para Facts C Ambrose (n 25) [2007] EWHC 2372 (Comm); [2008] 1 Lloyd s Rep 450. pg. 6

14 12. RESPONDENTS further argue that the arbitration notices served by RHI on 28 th January and 24 th February were both invalid as RHI was never a party to the arbitration agreement. 32 It can therefore be concluded that arbitration had never commenced. It is affirmed by FT Mackley & Co Ltd v Gosport Marina Ltd where it was held that an attempt to commence a tripartite arbitration when one of the parties was not even a party to the arbitration agreement would render the notice of arbitration invalid Since the CLAIMANTS are no longer an entity and RHI was also a non-party to this arbitration, the subsequent conduct of appointing the arbitrator by the RESPONDENTS is merely for contingency in the event that this tribunal rule in favour of the CLAIMANTS. 34 II. There was No Valid Cancellation of the Charter-party. 14. The CLAIMANTS may not claim that the Charter-party was validly cancelled because (A) the RESPONDENTS notice of cancellation was only a notification of intention to exercise its right of cancellation; (B) the CLAIMANTS cancellation was unilateral; and (C) the cancellation was not accepted by the RESPONDENTS. 35 A. The RESPONDENTS notice of cancellation was only a notification of intention of exercising its right of laycan. 15. The RESPONDENTS argue that the notice issued on 27 th November was only a notification of intent. Firstly, (i) it was a declaration of its intention to exercise its contractual right; secondly, (ii) the notice was not pre-mature; thirdly (iii) it was the CLAIMANTS who repudiated the contract; and lastly, (iv) it was the CLAIMANTS who breached the Charter-party through failing to proceed with reasonable dispatch. 32 Facts 101, [2002] EWHC Facts Facts 96. pg. 7

15 (i) The RESPONDENTS act on 27 th November was a mere declaration of its intent to exercise its legal right to cancel upon date of laycan. 16. RESPONDENTS argue that the letter dated 27 th November was a mere declaration of its entitled right. 36 It has come to the attention of the RESPONDENTS that the CLAIMANTS as of the date of the issuance of the aforesaid letter, was no longer willing, able or capable of performing its contractual obligations. The RESPONDENTS therefore were left with no choice but to issue its letter of intent that upon the date of the laycan, the automatic cancellation of the Charter-party will take place. 17. Furthermore, the RESPONDENTS maintain that a declaration to exercise its legal rights cannot be considered as a premature cancellation. The CLAIMANTS must not be allowed to rely on the letter being named Notice of Cancellation as an act of repudiation. The RESPONDENTS at no point of time in the letter dated 27 th November intimate to the CLAIMANTS that the Charter-party is hereby cancelled as of the date of the letter. 37 The content of the notice was that as the vessel in no circumstances could meet her laycan, no further revision of ETA and laycan would be entertained as it was not possible for the CLAIMANTS to meet them anyways. The letter further noted that it was the RESPONDENTS position that damages would be sought against the CLAIMANTS in respective of their breach of obligations. (ii) Alternatively, the CLAIMANTS cannot be allowed to argue that the notice of cancellation was premature. 18. It should be noted that pursuant to Fercometal SARL v Mediterranean Shipping Co SA ( The Simona ), 38 Lord Ackner in the delivery of his judgment relied on several common law cases regarding the effect of repudiation. The first of whom is Jones v Barkley in which Lord 36 ibid. 37 ibid. 38 Fercometal SARL v Mediterranean Shipping Co SA [1986] 1 Lloyd's Rep 171. pg. 8

16 Mansfield held that all the party needed to show their innocence was that they were ready to perform and only stopped because they know of the intention of the other party not to perform. It is not necessary for the first to go further and do a nugatory act In the present situation, evidences as transpired suggest that the CLAIMANTS are both unable and unwilling to perform their contractual obligations. This is supported by the fact that they were unwilling to pay the security deposit required to get the Reliable Butterfly released. Their internal memorandum further proved their unwillingness to resolve the matter so that they can continue performing the obligations as required by the Charter-party. 40 Hence, the notice of cancellation was in fact neither delivered out of the blue nor premature. (iii) The CLAIMANTS act was also an implied repudiation of contract. 20. The RESPONDENTS argue that the CLAIMANTS act was an implied repudiation of the Charter-party. By a notice issued on 25 th November, 41 the CLAIMANTS stated that they will not be able to deliver any vessel by the date of the laycan. Such a message should be construed as an implied repudiation of the Charter-party by the CLAIMANTS where they have already stated that they are both unwilling and unable to perform their contract obligations. 21. The Simona is also considered by Cort and Gee where Lord Campbell held that readiness is where one party is willing to perform the contract and would have done so had it not been for the renunciation of the contract by the other party. 42 Cort and Gee derived its authority from an earlier case of Hochster v De la Tour where Lord Campbell (who also presided this case) held that where there is a contract for future performance, if one party repudiates a contract, it will make no sense for the other party to wait until the date of performance before remedying his 39 Jones v Barkley (1781) 99 ER Facts Facts Cort and Gee v Ambergate Nottingham and Boston Eastern Junction Railway Company (1851) 17 QB 127, 144. pg. 9

17 situation In the present case, the RESPONDENTS were ready and willing to perform their contractual obligation but for the CLAIMANTS breach of contract. Therefore, even if the tribunal deemed that the Notice on 27 th November was an act of cancellation, it was still not premature as it was only issued in response to the CLAIMANTS repudiation of the Charter-party which can be implied by the CLAIMANTS earlier act. When the CLAIMANTS refused to provide the RESPONDENTS with an ETA with a proper date, this already pointed to their repudiation of the Charter-party. (iv) The CLAIMANTS breached the Charter-party when they failed to proceed with reasonable dispatch. 23. It is the RESPONDENTS position that the CLAIMANTS have also breached the Charterparty when the failed to proceed with reasonable dispatch. It is the RESPONDENTS position that the arrest of the Reliable Butterfly was entirely avoidable had the CLAIMANTS been more diligent with managing finances related to the ship, as the ship is essential for the RESPONDENTS meeting their contractual obligations. 24. This principle is illustrated in M Andrew v Adams where Tindal CJ stated [u]pon general principles, in all contracts by charter-party, where there is no express agreement as to time, it is an implied stipulation that there shall be no unreasonable or unusual delay in commencing the voyage, and after it has been commenced, no deviation. 44 In Ocean Tramp Tankers Corp. v V/O Sovfracht (The Eugenia ), it was held by the courts that a breach in the implied term of reasonable dispatch can be held as a breach of condition, thus allowing the parties to bring the contract to an end. In this case, the vessel was unable to berth on time due to the port being 43 Hochster v De La Tour (1853) 2 E & B 678, [1834] 1 Bing NC 29. pg. 10

18 identified by the Egyptian Government as an engagement zone. 45 The courts again confirmed the principle that normally, the innocent party will claim damage but not a repudiation of contract in Geogas SA v Trammo Gas Ltd (The Baleares ) where in this case, the vessel was deemed to have failed to proceed with reasonable dispatch. 46 In this case, the vessel was unable to meet either the laycan or the Charter-party cancellation date. The RESPONDENTS therefore cancelled the Charter-party and claimed damages were affirmed by the courts. 25. It is therefore the RESPONDENTS position that upon missing the deadlines of the Charterparty cancellation date and the ETA, the charterer is lawfully entitled to cancel the contract and claim damages which is exactly what transpired in the present case. In the current dispute, the RESPONDENTS recognized that the CLAIMANTS realized themselves being unable to perform the Charter-party, 47 the RESPONDENTS therefore intend to automatically exercise its right of cancellation of the Charter-party upon reaching the date of the laycan. Furthermore, in their letter dated 28 th November, the RESPONDENTS have also informed the CLAIMANTS that they intend to claim damages arising out of the CLAIMANTS breach of the Charter-party, which is fully recognized by law as per the Baleares case It is also the RESPONDENTS position that the CLAIMANTS cannot argue that they have provided a viable alternative. In their letter dated 28 th of November by the CLAIMANNTS to RESPONDENTS, 49 the CLAIMANTS failed to provide the location or ETA of the alternate ships. It is therefore still impossible for the RESPONDENTS to ascertain whether the alternative ships can even make it to the lay-port on time. The actions undertaken by the RESPONDENTS are therefore still the best course of action available. 45 Ocean Tramp Tankers Corp. v V/O Sovfracht [1964] 2 QB 226, Geogas SA v Trammo Gas Ltd [1991] 2 QB 139, Facts Facts Facts 97. pg. 11

19 (v) The CLAIMANTS also breached the time is of the essence clause. 27. The RESPONDENTS argue that the time is of the essence doctrine applies to the Charter-party by virtue of the laycan clause. This is supported by the fact that during negotiation of the contract, the parties took special consideration as to the upcoming shut down of the terminal due to maintenance reasons. Furthermore, during the ordeal in which the CLAIMANTS were in the process of delivering the Reliable Butterfly, the parties have taken special note as to the importance of getting the vessel to the layport by the time of the laycan. 50 It is therefore conclusive that the parties realize timely arrival of the ship is critical to establishing the commercial object of the Charter-party. 28. It was held in Lombard North Central v Butterworth by Mustill LJ that a stipulation of the time is of the essence, 51 in relation to a particular contractual term will mean that timely performance of the contract is a condition of the contract. The CLAIMANTS, by failing to deliver the Reliable Butterfly by the date of laycan, therefore breaches the condition of the Charter-party. 29. It was further held by the House of Lords in AS Tankexpress v Compagnie Financiere Belge Des Petroles SA that where there is a clause for time is of the essence, the breach of such clause will entitle the aggrieved party to cancel. 52 Again in the case of Bowes v Shand, 53 the court held that as the agreement had stated that delivery should be between March and April, early delivery will entitle the aggrieved party to reject. 30. It is therefore clear in this case, when the CLAIMANTS failed to deliver the vessel on time, they have breached a condition of the Charter-party, thereby, entitling the RESPONDENTS the right of rescission. 50 Facts 3, [1987] QB [1948] 2 All ER Bowes v Shand [1877] 2 App Cas 455(HL). pg. 12

20 B. The RESPONDENTS argue that the premature cancellation was unilaterally made by the CLAIMANTS. 31. It is the RESPONDENTS position that the CLAIMANTS attempted at premature repudiation of the Charter-party when (i) the CLAIMANTS refused to issue revised laycan and ETA and (ii) attempted at unilateral cancellation by taking advantage of the RESPONDENTS communication. (i) The CLAIMANTS refused to issue revised laycan and ETA. 32. Firstly, there was a premature repudiation of the Charter-party by the CLAIMANTS when they intimated to the RESPONDENTS that they will no longer be able or are willing to perform their contractual obligations by supplying a vessel to the RESPONDENTS by the date of laycan. (ii) The CLAIMANTS attempted at unilateral cancellation. 33. Secondly, the CLAIMANTS attempted at unilateral cancellation again when they took advantage of the literal naming of the RESPONDENTS notice of intent to exercise its right of cancellation as literal meaning of repudiation. It is therefore the RESPONDENTS position that the CLAIMANTS attempt at premature cancellation of the Charter-party was unilateral and unlawful. C. Cancellation by the CLAIMANTS was never accepted by the RESPONDENTS. 34. The RESPONDENTS argue that they never issued any acceptance or acknowledged cancellation of the Charter-party. 35. Lord Ackner in The Simona also cited Frost v Knight where he held in The Simona that the innocent party upon wrongful repudiation have two options, 54 whether to accept the repudiation (only at which point of acceptance will the contract end) or to refuse the 54 Frost v Knight ( ) LR 7 Ex 111, 114. pg. 13

21 repudiation and treat the contract as continuing. 55 It is therefore the RESPONDENTS position that there was never an acceptance of repudiation. The Charter-party was a continuing one until the complete discharge of Charter-party upon the delivery of cargo within the expected period from 10 th January to 14 th January. 56 III. Alternatively, Even If the Charter-party was Deemed Validly Cancelled, CLAIMANTS are Still Not Entitled to the Freight. 36. The CLAIMANTS are not entitled to any freight due to the fact that (A) they failed to earn their freight; (B) freight deemed earned without consideration is against established law; and (C) the parties had not intended the contract to be completed without completion of all obligations. A. CLAIMANTS are not entitled to the freight. 37. CLAIMANTS are not entitled to freight because (i) CLAIMANTS breached the Charter-party and (ii) breached their obligations under the narrowed laycan. (i) In breach of the Charter-party, the CLAIMANTS failed to commence the approach voyage to comply with her laycan. 38. Under English Law, freight is usually not payable until the full voyage is performed. 57 Owing to the arrest of Reliable Butterfly, which was a direct consequence of the CLAIMANTS acts and omissions, no performance could even be deemed to have been commenced. Freight can therefore be hardly deemed earned in the face of such circumstances. 39. It is common knowledge that the original commercial intention of this Charter-party was for the transportation of the cargo. Similarly, in Dakin v Oxley, it was held by the courts that where the original commercial intention of the contract was for the transportation of goods and the 55 Fercometal SARL v Mediterranean Shipping Co SA [1989] AC 788, Facts Julian Cooke and others, Voyage Charters (3rd edn, Informa Law 2007) pg. 14

22 ship-owner failed to perform such material obligations of the contract, the ship-owner will not be entitled to any freight. 58 (ii) The CLAIMANTS also breached their obligations under the narrowed laycan. 40. It should be noted that pursuant to Bulk Carriers Ltd v Andre Et Cie SA, it was held that whereupon the charterer provides a notice to nominate or narrow the laycan, then such notice is obligation other than option. 59 The fact that the CLAIMANTS in this case refused to do what it takes to free the vessel from arrest so that the Reliable Butterfly can meet its laycan constitutes a breach of such obligation. B. In any event, the Deemed Earned Clause is invalid. 41. Clause 4 is invalid in the context of the entire situation because it is contradictory to established principle of consideration. 42. As mentioned, it is the public policy of the English Law that consideration is required in order for a contract to exist. It is the RESPONDENTS position that the deemed earned clause lacks any consideration. This clause is invalid and should be struck out. 43. In the Dominque case, freight was defined by the court as the monetary consideration payable to the ship-owner for the carriage of the goods. 60 In the present case, no goods was actually carried. 44. The CLAIMANTS in this case acted against good faith when they attempted to use wording to have freight deemed earned without any real consideration to the contract. While in all historical cases that concerned the doctrine of indefeasible or advanced freight will only be earned after the loading of the cargo, which will already be sufficient indication that performance will proceed. In this case, the CLAIMANTS are attempting to earn freight 58 Dakin v Oxley (1864) 15 CB (NS) 646, Bulk Carriers Ltd v Andre Et Cie SA [2001] EWCA Civ 588 para Colonial Bank (Now Bank of Boston Connecticut) v European Grain & Shipping Ltd (The Dominique) [1989] 1 Lloyd s Rep 431, 436. pg. 15

23 without even needing to perform anything aside from the signing of the contract which is against the policy in the English law where consideration is a necessity for contract Alternatively, even if it is found that there is consideration in the contract, RESPONDENTS argue that the breach caused by the CLAIMANTS is of such a magnitude as to bring about a total loss of consideration. Pursuant to Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, 62 such a breach will entitle the aggrieved party the right to rescind the contract. C. The RESPONDENTS contend that Clause 4 (the Deemed Earned ) clause is contradictory to the object of the Charter-party. 46. The RESPONDENTS contend that Clause 4 is (i) contradictory to the laycan clause; (ii) contrary to the commercial nature of the contract; and (iii) should be struck out by the courts in order to give effect to this Charter-party. (i) The Deemed Earned Clause is contradictory to the laycan clause. 47. The RESPONDENTS argue that the deemed earned clause is contradictory to the laycan clause in the Charter-party in that if freight is to be earned simply by the lifting of the subjects, it will negate the effects of the laycan clause. The purpose of the laycan clause, is after-all a clause which stipulates the date by which the ship-owner would present its vessel in the required state of readiness. As noted by Lord Denning in Marbienes Compania Naviera SA v Ferrostaal AG (The Democritos ), the purpose of the doctrine of laycan is that although there may have been no breach by the owners, the charterers are, for their own protection, entitled to cancel if the vessel is not delivered in proper condition before the said cancelling date, which is the sole effect of such clause In the present situation, should the tribunal deem the deemed earned clause as a valid one, it 61 Director General of Fair Trading v First National Bank plc [2001] UKHL Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB Marbienes Compania Naviera SA v Ferrostaal AG (The Democritos) [1976] 2 Lloyd s Rep149, 152. pg. 16

24 will be contradictory to the fundamental principle of the existence of laycan in maritime law. The law protects the charterers from undue cost liabilities in the event of such breach by the ship-owners. In this case, the CLAIMANTS, not only failed to deliver the vessel in a ready state, but entirely failed to deliver any vessel to the RESPONDENTS. It will be simply unjust to subject the RESPONDENTS to liability of costs where the CLAIMANTS completely failed to deliver any of the commercial objects of this Charter-party. 49. The RESPONDENTS further rely on the latest authority regarding laycan, where it was held by the Court of Appeal in Mansel Oil & VITOL SA v Troon Storage Tankers SA that purpose of a cancelling clause is to fix a definite date by which, if the owners fail to deliver the vessel to the charterers, the charterers are entitled to wait no longer for the vessel to be delivered. In the absence of a cancelling clause an owner would be in breach of charter for failure to deliver on the contractual date but a charterer would not be able to treat the owner as being in repudiatory breach of contract until the delay was such as to frustrate the commercial purpose of the adventure In our case, the parties had included a laycan clause which serves to protect Charters from undue liability. This is directly contradictory if freight can be deemed earned upon lifting of the subjects where Charterer will be liable regardless whether the CLAIMANTS even attempted at performing their obligation under the contract. 51. Illustrated in Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Group Corp, 65 the courts held that where possible, words of contract are to be given their natural and ordinary meaning. This general rule may be departed should this lead to absurdity or inconsistency to the rest of the contract Mansel Oil & VITOL SA v Troon Storage Tankers SA [2009] EWCA Civ 425; [2009] 1 CLC 782, Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Group Corp [2000] 1 Lloyd s Rep 339, HG Beale (n 24) pg. 17

25 (ii) Deemed Earned Clause Contradicts Nature of Existing Charter-party. 52. Furthermore, RESPONDENTS argue that the deemed earned clause will also contradict with the commercial nature of the Charter-party in question. The commercial purpose of this contract being, the charterer paying freight in exchange for the ship owner to provide the vessel. As a result, if freight is deemed earned upon lifting of the subjects, the commercial nature of this Charter-party will become freight in exchange for signing a piece of paper, which is contrary to the common intention of the parties. 67 (iii) In any event, as the Deemed Earned Clause is contradictory to business efficacy and the clause should be struck out as the Charter-party cannot operate with existence of it. 53. It is the RESPONDENTS position that Clause 4 of the Standard Terms is contrary to business efficacy as freight would be deemed earned upon the lifting of the subjects. 68 Under English law, consideration is a keystone of any agreements as it provides leverage for both parties to perform their contractual obligations. 54. According to Justice Lush J in the case of Currie v Misa, consideration is traditionally defined as some detriment to the promisee or some benefit to the promisor For a consideration to exist, mutual exchange must be accomplished where both parties from the deal would have gained something from entering into a deal and the thing given out in question, must be of value in some way In the present scenario, it is the RESPONDENTS position that if freight is deemed earned upon lifting of the subjects, the CLAIMANTS did not provide anything of value to this deal and therefore the contract should either be void. Alternatively, the deemed earned clause which removed the contract of any value should be struck out. 67 Marquis of Cholmondeley v Clinton (1820) 2 Jac & WI Facts Currie v Misa (1875) LR 10 Ex 153, HG Beale (n 24) pg. 18

26 IV. The RESPONDENTS are Entitled to Damages, Interests and Costs. 57. The RESPONDENTS are entitled to damages, interests and cost because (A) the CLAIMANTS caused the missing of the laycan; (B) the RESPONDENTS are entitled to damages for breach; and (C) the CLAIMANTS cannot claim damages. A. Missing the laycan is not within the usual course of things. Rather, CLAIMANTS assumed responsibility for the consequences of the delay when both CLAIMANTS and RESPONDENTS contracted with each other. 58. Missing the laycan is outside the usual course of things to be contemplated by parties since parties enter into Charter-party to actualize performance, but not to effectuate the breach of it from the outset. Lord Hope of Craighead highlighted the critical question to be considered in Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas ) when remoteness of damages is dealt with, which goes whether the parties must be assumed to have contracted with each other on the basis that the charterers were assuming responsibility for the consequences of that event It stands to reason that when the Charter-party was entered into, the CLAIMANTS assumed responsibility for the provision of ship for voyage whereas the RESPONDENTS assumed responsibility for keeping the ship sound throughout the voyage charter. Such points to the very basis of the Charter-party, without which no Charter-party would have been entered into. In face of the CLAIMANTS breaching its contractual duty to fulfill the laycan, coupled with its failure to provide a revised ETA soon enough and an appropriate replacement subsequent to the delay, the CLAIMANTS assumed responsibility for the delay. 71 Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas ) [2008] UKHL 48 para 30. pg. 19

27 B. Alternatively, the RESPONDENTS are entitled to the amount of freight by way of claiming damages. 60. As a consequence of the CLAIMANTS missing the laycan, which goes to the root of the contract, the RESPONDENTS incurred losses in the difference in freight in the amount of approximately US$ 824,000 payable under the replacement fixtures secured by the Charterers, sums due and payable to the loadport terminal/ sellers pursuant to the relevant sale contract for delayed arrival, in the amount of US$150,000 and sums due and payable to the disport terminal/ buyers pursuant to the disport terminal/buyers pursuant to the relevant sale contract for delayed arrival in the amount of US $300,000 in respect of losses suffered from delayed planned work. C. The CLAIMANTS cannot claim damages. 61. The RESPONDENTS are prevented from performance of the Charter-party owing to the CLAIMANTS failure to provide a new ETA within a reasonable time. Clearly, the CLAIMANTS had at all times frustrated the Charter-party and should be denied of any possible relief. D. Alternatively, based on the doctrine of equitable set-off and the RESPONDENTS counter-claims, it is unjust to allow the CLAIMANTS any relief. 62. Similar to the case of Murphy v Zamonex, where Giles J held: Equitable set-off is available where the defendant establishes an equitable ground for being protected from the plaintiff s claim. That has been expressed in language to the effect that the defendant s set-off goes to the root of or impeaches the title of the plaintiff s claim, but also in the language to the effect that pg. 20

28 the counter-claim is so directly connected with the claim that it would be unjust to allow the plaintiff to recover without taking into account the defendant s counter-claim In the present circumstances, the counter-claim by the RESPONDENTS for the freight incurred in arranging alternative shipping for the RESPONDENTS cargo is impeaching on the CLAIMANTS claims, as none of the damage that the RESPONDENTS had suffered would even exist had it not been for the CLAIMANTS breach of contract, which resulted in the RESPONDENTS detriment. As a result, similar to the case of Murphy, it would be unjust for this arbitration tribunal to consider the CLAIMANTS claim for freight without considering the RESPONDENTS losses which were caused by the CLAIMANTS within the same context. 64. The same doctrine was once again confirmed by James v Commonwealth. Gummow J in his judgment held that it is sufficient that the legal demand, in this case the applicant s claims to payment by the banks on the indemnities, would not have come about or were at least contributed to by the applicant s own breaches of duty owed to the banks. 73 The situation in this case is very similar, as the claims of freight by claimant would not have come about but for the breach of duty owed to the RESPONDENTS by the CLAIMANTS. RESPONDENTS damages should therefore be used to set-off claims of damages and freight being claimed by the CLAIMANTS. 65. In Galambos v McIntyre, Woodward J also noted that [i]t seems from the language used by the Lord Chancellor that he regarded the prerequisites of an equitable set-off to be: a. clear cross-claims for debts or damages, which b. were so closely related as to the subject matter that the claim sought to be set-off impeached the other in the sense that it made it positively unjust that there should be recovery without deduction. 72 [1993] 31 NSWLR 439, [1992] 37 FCR 445, 459. pg. 21

29 66. Currently, RESPONDENTS are claiming damages for the CLAIMANTS breach, which is a cross-claim from the CLAIMANTS claim of freight owed. Also, as the damages being counter-claimed by the RESPONDENTS is intricately tied to the same Charter-party, they are closely related matters. In consideration of the above factors and legal authorities mentioned, a set-off will therefore provide a true defense to a claim for the RESPONDENTS. pg. 22

30 PRAYERS FOR RELIEF The RESPONDENTS respectfully request the tribunal to declare that: 1. The tribunal has no jurisdiction to hear this case. 2. The Charter-party is still running. 3. The CLAIMANTS are not entitled to any freight. 4. The RESPONDENTS are entitled to $1,274, by way of damages. Respectfully submitted Super Charterers, the Respondents (Team 2) pg. 23