MEMORANDUM FOR RELIABLE HOLDINGS INC.

Transcription

1 15th International Maritime Law Arbitration Moot, 2014 IN THE MATTER OF AN ARBITRATION HELD IN HONG KONG MEMORANDUM FOR RELIABLE HOLDINGS INC. ON BEHALF OF Reliable Holdings Inc. Owners AGAINST Super Charters Inc. Charterers Team n 20 Sämi Meier Julie Nedelec Alice Remy David Rouault

2 STATEMENT OF FACTS 3 PART ONE: JURISDICTION 3 A. THIS ARBITRAL TRIBUNAL HAS POWER TO RULE ON JURISDICTION 4 B. THE ARBITRATION AGREEMENT 4 C. THE PROCEDURE WAS VALIDLY COMMENCED BY RELIABLE HOLDINGS 4 PART TWO: THE MERITS 6 I. THE BINDING CONTRACT 6 II. CANCELLATION OF THE CHARTER 7 A. THE CHARTER DOES NOT PROVIDE FOR A CANCELLATION CLAUSE AS SUCH 7 B. THE CHARTER WAS AUTOMATICALLY CANCELLED UNDER CLAUSE 2 OF OWNERS STANDARD TERMS 7 C. THE AUTOMATIC CANCELLATION OF THE CHARTER DID NOT DEPEND ON ANY BREACH BY THE OWNERS 8 III. BREACH OF CONTRACT 9 A. THE OWNERS ARE NOT IN BREACH OF CONTRACT 9 B. THE OWNERS ARE NOT IN REPUDIATORY BREACH OF THE CHARTER 10 C. THE OWNERS DID NOT RENUNCIATE THE CONTRACT 11 D. THE CHARTERERS FAILED TO PAY THE FREIGHT DEEMED EARN IN FULL, AND COMMITTED A BREACH OF CONTRACT BEFORE THE CHARTER WAS CANCELLED 12 IV. FREIGHT 13 B. THE CHARTERERS FAILED TO PAY 95% OF FREIGHT UPON LIFTING OF SUBJECTS 13 B. NO SET OFF OF SUMS COUNTERCLAIMED 18 V. DAMAGES 19 A. CLAIMS FOR DAMAGES ARE UNACCEPTABLE 19 B. THE AMOUNT OF CONSEQUENTIAL DAMAGES IS WRONG 22 PART THREE: PRAYER FOR RELIEF 25 2

3 Statement of Facts 1. By a voyage Charter ( the Charter ) dated 19 November 2011, Reliable Holdings Inc ( the Owners ) agreed to let and Super Charters Inc ( the Charterers ) agreed to hire the Reliable Butterfly ( the Vessel ) for a voyage from BLUELAND to INDIGOLAND carrying up to a full cargo of crude oil. The Charter provided that 95% of freight shall be due and payable upon lifting of subjects. 2. When subjects were lifted on 19 November 2011, the Vessel already commenced her approach voyage to the load port. On the way to the load port the Vessel proceed to the bunker port where she was arrested by third party bunker suppliers. The arrest was a consequence of Charterers non payment of freight. 3. By message of 27 November 2011 the Charterers declined to accept any later ETA and laycan. Therefore, the Charter was automatically cancelled by the operation of Clause 2 of the Owners Standard Terms as incorporated into the Charter. In consideration that the Charter was cancelled without recourse, both parties were released from any further obligations to perform the Charter. 4. In breach of the contract and despite of Owners reminder dated 28 November 2011, the Charterers refused to pay the outstanding freight. In order to get the outstanding freight and according to the arbitration clause incorporated into the Charter, the Owners referred the dispute to arbitration on 28 January On 14 March 2012 the Owners exposed their first claim submissions to the arbitral tribunal. Hereinafter and in due time the Owners present their second written submissions. Part one: Jurisdiction 6. The Owners argue that this Tribunal has jurisdiction to hear the merits of this dispute. First, the Tribunal has the power to rule on its own jurisdiction (A). Second, a valid arbitration agreement exists in the Charterparty, naming London as the seat of arbitration and English law as the law applicable to the procedure (B). Third, Reliable Holdings Inc. validly commenced the procedure and has to be treated as the claimant (C). 3

4 A. This arbitral Tribunal has power to rule on jurisdiction 7. The cornerstone of International Arbitration is the competence competence principle, which provides that an arbitral Tribunal can decide on its own jurisdiction. This power applies especially to any question about the validity of the commencement of the procedure. Hence, it is asked to the Tribunal to consider that this procedure is validly commenced by the Owners. B. The arbitration agreement 8. The Charterparty concluded between Reliable Tankers and Super Charters, on 19 November 2011 plus the fixtures agreed upon provide for an arbitration agreement About ratione materiae jurisdiction, according to the clause, all differences and disputes of whatsoever nature arising out of the Charter shall be resolved by arbitration. The words used in this agreement give a broad scope to arbitration, as all types of disputes arising between the parties to the Charterparty are concerned. 2 Therefore, the Owners ask the Tribunal to consider that they have ratione materiae jurisdiction. 10. This agreement also specifies London as the seat of arbitration and English law as applicable law. 3 Thus, they did comply with the arbitration clause which provides that arbitration will take place in the City of New York or in the City of London whichever place is specified in Part I of this Charter pursuant to the laws relating to arbitration there in force. The Owners ask the Tribunal to decide that English law 4 is applicable to the procedure, and especially to the issue of the commencement of arbitration. C. The procedure was validly commenced by Reliable Holdings 11. The issue as to when an arbitration started is solved by a default provision 5 of the Arbitration Act 1996, if the parties didn t make any agreement. In this case, an agreement has been made as clause 24 of the Moot Problem, p. 12 and p.56 : Clause 24 in ASBATANKVOY Julian Cook, Timothy Young QC, John Kimball, LeRoy Lambert, Andrew Taylor, David Martowski, «Cancelling Clause», in Voyage Charter, 3rd ed, 2007, Moot Problem, p. 6 and 49 : CLS 24 : ARBITRATION ENGLISH LAW AND LONDON TO APPLY. mainly the Arbitration Act (3) (4) Arbitration Act 1996 s

5 Charterparty provides that the procedure commences when either party issues a notice of appointment. 6 The notice has here been issued on 28 January 2011 but Super Charters consider that it wasn t made by a party. 12. On 28 January 2012, Reliable Holdings sent a notice of appointment to Super Charters. The later then replied on 12 February that Reliable Tankers didn t exist anymore and that the appointment was therefore invalid. In fact, the Charterers try to avoid the procedure using an opportunistic argument. The notice of appointment was a letter, written on a slightly out of date headed notepaper mentioning Reliable Tankers Inc. Actually Reliable Tankers Inc. and Reliable Holdings Inc. merged recently by universal succession before the notice of appointment. This merger was made public only the 3 rd January , so it happened shortly before the notice of appointment. 13. The Tribunal will understand that the arbitration was validly commenced by Reliable Holdings Inc. because the mistake in the party s name was only a misnomer (1) and alternatively, because the two entities are the same one (2). 1. There is a clear misnomer that has been corrected. 14. When there is a misnomer in naming parties to arbitration, the relevant question is who would reasonably have been understood by the party against whom the claim was asserted to be the entity bringing the claim?. 8 It is established by the courts that arbitration is validly commenced even if there was a mistake in the name of the claimant. In fact, this error is seen as procedural and couldn t affect the validity of the proceedings. 9 The Courts also recognize that a procedural error can t justify the loss of the right to proceed Here the merger was recent, and there was a small error in the choice of the headed notepaper. This error amount to a simple misnomer, which has been corrected less than one month after the beginning of the 6 Moot Problem, p. 12 and p Moot Problem, p Per Gloster J in Seb Trygg Holding Aktiebolag vmmanches [2005] 2 Lloyd's Rep 129. This approach was applied in Harper Versicherungs AG v Indemnity Marine Assurance Co Ltd and othersriver Thames Insurance Co Ltd v Indemnity Marine Assurance Co Ltd and others [2006] 2 All ER (Comm) Harper Versicherungs AG v River Thames Insurance Co Ltd (2006) EWHC 1500 (Comm). And AMB Generali Holding AB Manches v Seb Tryg Holding Akt (2006), SEB TRygg Holding Aktiebolag v Manches (2205). 10 Unisys International Services Ltd v Eastern Countiers Newspapers Ltd (1991). 5

6 procedure (24 February). In addition it is reasonable to think that the non existing company was in fact the surviving company. Therefore, the Tribunal has to consider that this procedural error can t justify the invalidity of the proceedings and that Super Charters reasonably knew that it was Reliable Holdings who was the true claimant. 2. Alternatively, the commencement of the proceedings is valid because the two companies are the same one. 16. Reliable Tankers Inc. and Reliable Holdings Inc. merged by way of universal succession according to the joint expert appointed by the parties in this reference. This type of merger allow only one surviving entity Reliable Holdings Inc. -, who becomes the owner, of all the rights and property of the constituent companies and is liable of all obligations and penalties of the same companies. Besides, the transmission is automatic, meaning that not any notice is required As a consequence, the Tribunal has to consider that the two companies are now reunified in Reliable Holdings, which means that any action taken under the name of Reliable Tankers Inc. after the merger was in fact taken by Reliable Holdings Inc. Eventually, the two companies are the same. Part Two: The Merits I. The Binding contract 18. The relevant materials to take into account in the matter hereafter are the terms and conditions evidenced by the fixture confirmation recap agreed upon on 19 November. These terms and conditions includes the ASBATANKVOY 1977 as amended in the recap, the Super Charters Rider Clauses as amended as well, and both parties special terms (Owners Standard Terms and Charterers' Standard Terms) as fully incorporated. 12 Indeed, pursuant to Clause 43 of the Super Charters Rider Clauses the recap dated Moot Problem, p Moot Problem, p. 51, last sentence, «Both parties special terms fully incorporated as per attached». 6

7 November is considered as the binding contract, as neither the Owners nor the Charterers requested nor made any correction to the recap In this particular case, the above mentioned recap clearly provides, if it becomes evident that ship will miss her cancelling date, Owner to give a new ETA and Laycan which charterer must either confirm or decline within 72 hours. If charterer [ ]. If charterer elects to decline, then C/P to be cancelled without recourse to either party whatsoever. Furthermore, this recap was sent to Super Charter on November 19, and the latter did not ask any correction. Then, it is indisputable that this recap is to be considered as the binding contract. Pursuant to this interpretation, the Charter was cancelled. II. Cancellation of the Charter 20. Even if the Charter does not provide with a cancellation clause (A), the Charter was automatically cancelled (B). This cancellation does not depend on any breach (C). A. The Charter does not provide for a cancellation clause as such 22. According to the recap, Clause 5 of ASBATANKVOY Part II was deleted. 14 This clause provided for a cancellation clause. The cancellation clause gives the Charterers an express contractual right to terminate the charter party if the vessel is not ready in accordance with the requirements of the charter by a particular named date. 15 As no such clause is incorporated in the charter, the Charterers had no option to exercise in order to ensure the effectiveness of the Charter s cancellation. B. The Charter was automatically cancelled under Clause 2 of Owners Standard Terms 23. However, the Parties agreed on a laycan narrowed to 5 December by the Charterers. 16 According to Christopher Clarke J, the term laycan refers to the earliest date at which the laydays can commence and the date after which the charter can be cancelled if the vessel has not by then arrived. 17 It is of common 13 Moot Problem, p Moot Problem, p. 49 «CLS 5. DELETE». 15 Julian Cook, Timothy Young QC, John Kimball, LeRoy Lambert, Andrew Taylor, David Martowski, «Cancelling Clause», in Voyage Charter, 3rd ed, 2007, Moot Problem, p. 92 : the laycan was narrowed to 5th December by the Charterers. 17 Christopher Clarke J in SNV Gas Supply v Naftomer Shipping & Trading (The Azur Gaz), [2005] EWHC 2528 Comm, [2006] 1 Lloyds Rep

8 practice to consider that if the ship is likely to be delayed in reaching the loading port, the ship-owner may ask the charterers to extend the cancelling date. If the charterers agree, the contract is amended accordingly. If not, the charterers may have the option to cancel the charter either before the cancelling date by mutual consent Pursuant to Clause 2 of the Owners Standard Terms 19, the Charter is to be cancelled in the event that the Charterers elects to decline the new ETA and laycan given by the Owners, «if it becomes evident that ship will miss her cancelling date». This Clause 2 provides for an automatic cancellation of the charter, as it is to be cancelled if the above circumstances are reached. The Charterers is given a choice to either confirm or decline the further specified new ETA and laycan. As the ship was not released from arrest on 25 November, it became evident that the ship would miss her cancelling date. 20 The Charterers did elect to decline a further revised laycan 21 within 72 hours as requested, in their notice of cancellation dated 27 November. The effect of this election was the automatic cancellation of the Charter without recourse. Hence the Charter was automatically cancelled on 27 November. C. The automatic cancellation of the Charter did not depend on any breach by the Owners 25. Even if no cancelling clause as such is provided by the Charter, in a way, the Charterers have the power to continue or to put an end to the Charter through its obligation to confirm or decline the further specified new ETA and laycan. No breach is requested from the Owners to allow cancellation of the Charter, which derives automatically from the choice of the Charterers to decline new ETA and laycan. The Charter was cancelled by the sole effect of the Charterers election to decline the further determined ETA and laycan, without any breach committed by the Owners. Hence, Clause 2 can be considered by analogy with the cancelling clause, which does not depend on any breach by the Owners 22 as well. 18 Peter Brodie, «Laytime Commencement», in Commercial Shipping Handbooks, Informa Law from Routledge, 2nd ed Moot Problem, p Moot Problem, p Moot Problem, p. 96, «Notice of cancellation». 22 Marbienes Compania Naviera S.A. v. Ferrostaal A.G. (The Democritos) [1976] 2 Lloyd s Rep. 149, per Lord Denning M.R. at p. 152 : Next the cancelling clause. Its effect is that, although there may have been no breach by the owner nevertheless the 8

9 III. Breach of Contract 27. The Owners argue that they are not in breach of the Charter (A), thus they neither repudiated (B) nor renounced the Charter (C). Further, the Charterers breached their obligation to pay the freight (D). A. The Owners are not in breach of contract 28. The Owners are not in breach of the Charter because the Vessel has commenced her approach voyage (1) and proceeded to load port with convenient despatch (2). 1. The Vessel has commenced her approach voyage on 19 November 29. The preliminary voyage (approach voyage) to the port of loading is to be considered part of the voyage within the contract. 23 The Vessel should be deemed to have commenced her approach voyage to the load port on 19 November when the Charter was agree upon. The voyage between the last discharge port of the previous charter and the first load port of the new chart is considered as the preliminary voyage. 24 It is known that she discharged her last cargo in ORANGELAND on 16 November, and sailed from this date towards REDLAND for bunkering. Hence, the Owners contend that the approach voyage commenced on 19 Novembre, at such a time as to enable the Vessel to meet her laycan The Vessel proceeded with convenient despatch to the load port 30. Clause 1 of ASBATANKVOY Part II requires the vessel to proceed "with all convenient despatch" to the load port. The Charter contains not only this convenient despatch clause, but also an estimated time of arrival. ETA load port is specified in the recap to be on 3 December, and the cancelling date is 5 December. On 19 November, the Vessel was heading to her bunker port, ETA 22 November 26, to make an intermediate stop for bunkering supplies. This does not constitute an intervening voyage, but by analogy with cases concerning intermediate voyages 27, there is no general principle that an owner may charterers are, for their own protection, entitled to cancel if the vessel is not delivered in a proper condition by the cancelling date. That is the sole effect. 23 Bruce v. Nicopulo [1855] 11 Ex 129; 24 L J (Ex) Felix W. H. Chan, Jimmy J. M. Ig, Bobby K. Y. Wong, Shipping and Logistics Law : Principles and Practice in Hong Kong, Hong Kong University Press, 2002, p Moot Problem, p Moot Problem, p See Hudson v. Hill [1874] 43 L J (CP) 273 ; Monroe Bros v. Ryan [1935] 2KB 28 ; Louis Dreyfus v. Lauro [1938] 60 Lloyd s Rep. 94 ; The Baleares [1993] 1 Lloyd s Rep

10 not undertake intermediate voyage. The Charter does not contain express provisions to ensure that the Owners proceed directly, immediately or without deviation to the load port. This stop was planned by the recap and was taken into account when ETA and the cancelling date were fixed. The Owners were in good faith when specifying the ETA and laycan. 28 Hence the bunkering supplies stop was not to prevent the Vessel from meeting her cancelling date. 31. This stop was necessary to comply with Clause 1 ASBATANKVOY Part II 29 which provides that the vessel has to be "in every respect fitted for the voyage". It is of common sense to consider that a vessel needs fuel to perform the voyage, bunkering supplies were then mandatory for the Vessel to be fitted for the voyage. In addition, Clause 2 of the Charterers Standard Terms 30 contains a bunkering clause, requesting any bunkering to be allowed with the Charterers, and demanding a ship fully bunkered to perform the contracted voyage. In order to comply with this term, the Owners had no choice but reaching Redland for bunkering. 32. The Owners used due diligence to meet the cancelling date, from the commencement of voyage. 31 The vessel was then arrested by bunker suppliers, which is an event outside of the Owners control. The Owners admit that without this arrest, the Vessel would have meet the laycan, as Charterers contend in their defense submissions 32 (which shows by the way the good faith of the Owners in determining the cancelling date). B. The Owners are not in repudiatory breach of the Charter 33. As prescribed above, the Owners argue not being in any breach of the Charter. If the Tribunal elects to decide otherwise, which is denied, the different breaches argued by the Charterers do not amount for repudiatory breaches. In the light of Gold Group Properties Ltd v BDW Trading Ltd, repudiation cannot 28 See the role of good faith in Robert Meehan, "Estimated time of arrival", in Maritime Risk International, RaetsMarine, Feb Moot Problem, p Moot Problem, p See The Baleares [1993] 1 Lloyd s Rep Moot Problem, p110,

11 be characterized here. 33 The Owners did not manifest at any time an intention to no longer be bound by the terms of the Charter. 34 For repudiation, the breach must go to the root of the contract 35 which is clearly not the case when it comes to preliminary voyage and convenient despatch. 34. Further, the Owners contend that the commencement of the approach voyage, as well as the convenient despatch clause, are not conditions. 36 Only a breach of a condition or a breach of an innominate term that deprives the whole benefit of the contract allows a party to treat the contract as repudiated. The convenient despatch clause is described by Cook Young and Taylor 37 as being probably an innominate term 38, at any rate where the contract also contains a cancelling clause (the cancelling clause with the effect to decrease the weight of the convenient despatch clause). The proper cancelling clause was deleted from the Charter, but the Charter does provide for an automatic cancellation provision as we discussed above. Even if it is found that the convenient clause was breach, which is denied, the Charterers cannot argue that he was substantially deprived of the whole benefit of the Charter. 35. The same reflexion can apply to the obligation to commence the approach voyage so as to enable the vessel to meet the laycan. The laycan and the automatic cancellation provision of Clause 2 of the Owners Standard Terms, upon which the Owners will rely to perform the Charter, decrease the weight of this obligation to commence the approach voyage (by the way respected by the Owners). C. The Owners did not renunciate the contract 36. The Owners hold that the contract has not been renounced. A renunciation occurs when one party by words or conduct evinces an intention not to perform, or expressly declares that he will be unable to 33 See Gold Group Properties Ltd v BDW Trading Ltd (formerly known as Barratt Homes Limited) [2010] EWHC 323 (TCC), where the court briefly set out the principles for repudiation. 34 See among others Moot Problem, p.97 where the Owners proposed a sistership. 35 Federal Commerce and Navigation Co. Ltd v Molena Alphas Inc. [1979] AC 757, Poussard v Spiers (1876) 1 QBD 410 : If a condition is breached the innocent party is entitled to repudiate the contract and claim damages. For the differences between a condition, an innominate term and a warranty, see Edwin Peel, «The termination paradox», in Lloyd s Maritime and Commercial Law Quarterly, p. 520 ; Chitty on Contracts, paras to and to for a definition of a condition and the way to classify contractual terms. 37 Voyage Charter, Lloyd s of London Press, Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26 : Only where the innocent party was substantially deprived of the whole benefit, will they be able to treat the contract as at an end. But even where the parties have themselves classified the term as a condition the courts can hold that it was in fact only a minor term and therefore a breach of that term would not give rise to the right to repudiate the contract ; Schuler v Wickman Tools [1974] AC 235 ; Lombard North Central v Butterworth [1987] QB 527 ; The Mihalis Angelos [1970] 3 WLR 601 ; Bunge Corporation v Tradax [1981] 1 WLR

12 perform. 39 The Owners never declared that they were not unable to perform, as they were able to, but with delays as the vessel was arrested. 37. The Owners intention to still perform the contract is highlighted by the letter of 25 November 40, in which the Owners clearly express their intention to still perform the Charter, even if the arrest prevents the vessel from meeting her laycan. Then, the Owners proposed a sistership to perform the fixture in the letter of 28 November, which proves the intention of the Owners to still perform the fixture, even under another Charterparty. The Owners argue that no renunciation of the Charter can be found. D. The Charterers failed to pay the freight deemed earn in full, and committed a breach of contract before the Charter was cancelled 38. In Kuwait Rocks Co v AMN Bulkcarriers Inc (The "Astra") 41 the High Court highlighted certain elements which are strongly indicative of the parties intention to attribute importance to the prompt payment of the freight in the contractual relationship, and in particular the indication of a contractually agreed term for the making of a payment which should imply that such term is essential. 42 Payment of freight according to this case appears to be a contractual condition in the time charter business. By analogy the same reasoning could apply to voyage charters. 39. Clause 4 of the Owners Standard Terms 43 requests the Charterers to pay 95% of the freight upon lifting subjects, which occurred on 19 November. In the light of The Astra, the payment of 95% of freight could be interpreted as a contractual condition of the Charter. The Owners then argue that the Charterers are in repudiatory breach of its contractual obligation to pay the freight, accepted on 28 November 44 by the Owner. Where a party elects to accept the repudiation, further obligations of both parties to perform the contract are brought to an end, and the Charter remains in existence only for the enforcement of claims for damages for any breaches, and for the enforcement of claims due under the contract which were 39 Chitty on Contracts, paras Moot Problem, p Kuwait Rocks Co v AMN Bulkcarriers Inc (The "Astra") [2013] EWHC 865 (Comm) - QBD (Comm Ct) (Flaux J), shows the different reasons why the court held that the obligation to make punctual payment of hire was a condition of the contract time charter. 42 Valerio Scarsi, «Payment of freight as a contractual condition Failure to pay may have high costs for charterers», in Shipping and Transport Bulletin, NCTM Studio Legale, Aug. Sept. 2013, p Moot Problem, p Moot Problem, p

13 earned and payable before the contract terminated. 45 Thus, the Owner can claim for freight. The Owners also consider to be entitled seek damages for loss of bargain. 46 Further, a failure of performance which constituted a breach of condition entitled the innocent party to treat himself as discharged from further liability. 47 The Owners can then treat themselves as discharged from further liability since the freight has not been paid. IV. Freight 40. By a voyage charter the Owners agreed to let and the Charterers agreed to hire the Reliable Butterfly for a voyage from BLUELAND to INDIGOLAND carrying up to a full cargo of crude oil. In consideration of and as remuneration for carrying the cargo on the named vessel parties fixed a lumpsum freight in the amount of US$ 5,195,125. Parties agreed that 95% of freight (US$ 4,935,368.75) shall be payable upon lifting of subjects. In breach of the Charter, the Charterers failed and refused to pay 95% of freight upon lifting of subjects (A). In no way the Charterers are allowed to set off sums counterclaimed (B) A. The Charterers failed to pay 95% of freight upon lifting of subjects 41. The recap dated 19 November 2011 provided a lumpsum freight in the amount of US$ 5,195,125 (1). The Owners failed and refused to pay the contracted freight, although it was payable upon lifting of subjects on 19 November 2011 (2). The amount of the non paid freight is US$ 4,935, (3). 1. The contracted freight is due and payable 42. The voyage charter contained a fixture recap dated 19 November 2011 on an amended ASBATANKVOY form with rider clauses. The wording of the aforementioned recap clarifies that its terms precede the ASBATANKVOY, which contained only some model clauses. The recap dated 19 November 2011 stipulated that freight is payable regardless of the actual quantity loaded. 48 Freight is so neither calculated on intake nor on delivered quantity, but as a fixed figure regardless of the quantity of cargo 45 «Formation and Terms of the Charter», Voyage Charter, Lloyd s London Press, See Financings v Baldock, [1963] 2 QB 104, See Chitty on Contracts, 30th ed, paras and Moot Problem, p

14 actually loaded. A freight calculated in the form of an agreed amount for the use of the vessel is called a lumpsum freight Under a lumpsum freight the whole sum is thus payable in full even if the contracted quantity of cargo is not delivered. 50 Freight is due though no goods are shipped. 51 There is no obligation of result, but only an obligation of means. In the case at hand the Owners took all the means to perform the Charter, notably they began the approach voyage in accordance to the Charter. If the Charterers had paid the contracted freight on 19 November 2011, the vessel would have met her laycan and there wouldn t have been a cancellation of the Charter. The cancellation of the Charter was thus not a consequence of Owners default, but a result of Charterers breach of contract. It has to be pointed out that freight is due if the event which prevented the completion of the voyage as originally agreed was brought to an end by the Charterers own default. 52 In the case at hand it was the Charterers who refused to pay the freight and refused to accept any later ETA and laycan. Therefore, Charterers behaviour constitutes a breach of contract and brought the Charter to an end. As a consequence of Charterers breach of contract, freight is fully due as agreed in the Charter. 44. Further, clause 4 of Owners Standard Terms provided that freight shall be deemed earned in full upon lifting of subjects and shall be discountless and non returnable. 53 This evidenced that under this clause the Owners have an indefeasible right to the payment of freight accrues on lifting of subjects. The Owners will not lose their right to payment of full freight even if the cargo was not shipped or the contract was brought to an end. 54 In the case at hand the vessel was never loaded by reason of the automatic cancellation of the Charter dated 27 November Despite of the automatic cancellation of the Charter 95% of lumpsum freight is due based on the clear wording of the validly concluded contract. 45. The Charter was automatically cancelled by the operation of Clause 2 of the Owners Standard Terms as incorporated into the Charter. In consideration that the Charter was cancelled without recourse, both 49 J. Cooke and others, Voyage Charters, 3rd ed., 2007, n Ch. Hill, Maritime Law, 6 th ed., 2003, p S.C. Boyd and others, Scrutton on Charterparties, 21 st ed., 2008, A J. Cooke and others, Voyage Charters, 3 rd 2007, n Moot Problem, p S.C. Boyd and others, Scrutton on Charterparties, 21 st ed., 2008, A

15 parties were released from any further obligations to perform the Charter. 55 Therefore, to acquire the right of freight the Owner had no obligation to continue the performance of the Charter. 46. It has to be illustrated that the Charter was cancelled on 27 November 2011, but freight was due and payable already on 19 November 2011 (cf. the following section). At the contracted payment date the Charter was thus fully effective. In The Dominique case the arbitral tribunal clarified that it is always important to consider whether the Owners right to the freight had been unconditionally acquired by them before the termination of the Charter or not. In the mentioned case the arbitral tribunal determined that freight was due upon the signing of the bills of lading dated 22 July 1982, but the Charter was terminated on 26 July. As a consequence the arbitral tribunal stated that the Owners right to freight survived the termination of the Charter The case at hand is quite similar to the mentioned The Dominique case. As the following section will point out, in the case at hand 95% of freight was due without any conditions upon lifting of subjects on 19 November The Charter was cancelled on 27 November 2011, so Owners right to freight survived the cancellation of the Charter and the Owners acquired their right to freight. Only the balance of 5% payable on completion of discharge is affected by the cancellation of the Charter. In consequence and as sign of good faith the Owners didn t claim the balance of 5% % of freight was due and payable upon lifting of subjects 48. The preceding section pointed out that parties fixed a lumpsum freight amounting to US$ 5,195,125. The issue is now to analyze and clarify the contracted payment date. Frequently this date is stipulated in the Charter In the case at hand the Charter provided in Clause 4 of its Standard Terms that freight deemed earned in full discountless non returnable and 95% of minimum freight payable upon lifting subjects remaining 5% of minimum plus balance for overage payable on completion of discharge and disconnection of 55 Moot Problem, p Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1989] 1 Lloyd s Rep J. Cooke and others, Voyage Charters, 3 rd ed., 2007, n

16 hoses. 58 Matter in dispute concerns only the 95% of freight payable upon lifting of subjects but not the 5% balance payable on the completion of discharge and disconnection of hoses. 50. The above quoted Clause evidenced that 95% of freight is payable upon lifting of subjects. Therefore it is important to determine the exact moment when subjects were lifted. Subjects are lifted after the parties acceptance of the essential contract conditions. 59 The parties usually record the terms of the contract in an recapitulating the terms finally agreed (recap). At the moment of the recap the parties intend to be bound by their contract, even if the formal Charter may not be drawn up later on In the case at hand the Owners dated 19 November 2011 referenced to the recap and confirms that parties were fully fixed. 61 Therefore, the Charterers admitted in paragraph 19 of their submissions that subjects were lifted on 19 November Obviously there is no disagreement relating to the date when subjects were lifted. Due to the parties agreement and the clear wording of the Charter subjects were lifted on 19 November As a result of this fixture and in accordance to the Charter, 95% of contracted freight was due and payable on 19 November In consideration of the fact that parties fixed a lumpsum freight, the contracted sum is due and payable upon lifting of subjects without any reserves and conditions. It has to be highlighted that lumpsum freight is payable in full even if the contracted quantity of cargo is not loaded or delivered. 63 As date of payment parties agreed on the date when subjects were lifted and no other moment, especially neither the loading nor the discharging date of the cargo. It appears to be clear that the contracted lumsum freight is due independently of any result. 52. Further, parties agreed that payment is due upon lifting of subjects. Based on the recap dated 19 November 2011 parties were aware that subjects were now lifted and, as a consequence, 95% of freight was due and payable. The contracted date is concerned to be a cut off day, which means that the Charterers were automatically in default on 19 November Therefore, the Owners had no obligation to put the Charterers in default by sending a reminder. Nevertheless and for the sake of order the Owners 58 Moot Problem, p P.R. Brodie, Commercial Shipping Handbook, 5 th ed., 2006, p T. Coghli and others, Formation of the Contract, 6 th ed., 2006, n Moot Problem, p. 89 and Moot Problem, p J. Cooke and others, Voyage Charters, 3rd ed., 2007, n

17 reminded the Charterers by message of 28 November 2011 that freight remains outstanding despite of the Charters cancellation. 53. Even if (which is denied) freight is in the ordinary mercantile sense presumed to be payable on arrival of the goods at the discharge port, the parties are admittedly free to provide otherwise. Under a voyage charter freight is usually payable in accordance with the explicit provisions of the Charter. 64 The freedom of contract is one of the basic principles of any law system and especially of the maritime law. Moreover, maritime law was even the first domain in international law that approved the principle of freedom of contract In the case at hand, parties used this autonomy and agreed that 95% of freight shall be payable upon lifting of subjects. Therefore, the condition for the payment of 95% of freight is neither the charging nor the discharging of the cargo but the lifting of subjects. It is exclusively the Charter that fixed the conditions of the payment of freight and neither custom nor use. Moreover, the conditions chosen by the parties are all but unusual. 3. The non paid freight amounts to US$ 4,935, Freight is payable in accordance to the explicit stipulations of the Charter. 66 In the case at hand, parties agreed on a freight amounting to US$ 5,195,125 by the recap dated 19 November The aforementioned amount results from the fixture WS Rate of 57.5, the WS Flat ($/mt) of and the cargo of mt. 68 As already mentioned only 95% of freight are matter in dispute because according to clause 4 of Owners Standard Terms only 95% of freight were payable upon lifting of subjects % of the contracted freight in the amount of US$ 5,195,125 corresponds to US$ 4935, However, the Charterers agreed on the aforementioned amount in paragraph 22 b of their submissions, so the amount is not litigious at all S.C. Boyd and others, Scrutton on Charterparties, 21 st ed., 2008, A M. Grid, Le paiement du fret, 1 st ed., 2009, p S.C. Boyd and others, Scrutton on Charterparties, 21 st ed., 2008, A Moot Problem, p Moot Problem, p Moot Problem, p Moot Problem, p

18 56. It has to be pointed out that the contracted freight is nevertheless payable in full even if cargo do not arrives at its destination or if cargo arrives but in a damaged state. The Charter provides explicitly in clause 4 of the Owners Standard Terms that freight deemed earned discountless which prevent the Charterers from claiming a discount on freight. 71 This clause evidenced that full freight is due independently of the Charters performance. This points out that there is no obligation of result but freight is due without any condition. 57. Afterwards, the Charterers could be tempted to estimate the agreed percentage of 95% of freight upon lifting of subjects as too high. Therefore, it has to be put straight that in maritime law it is all but unusual that a significant part of freight shall be due before the charging of the vessel. 72 B. No set off of sums counterclaimed 58. According to an established rule in English law there is no right for the Charterers to set off sums counterclaimed, unless such right is explicitly incorporated into the contract. 73 In the case at hand such right is not incorporated into the Charter. The well established legal practice affirm the principle that freight is sacrosanct and that setting off counterclaims arising under the same Charter against it is outlawed. 74 In the quite similar The Dominique case the House of Lords highlighted again the aforementioned principle whereby any set off is illegal. 75 The principle of non set off applies equally to intake freight and to lumpsum freight The fact that parties in an arbitration may obtain from the arbitral tribunal an immediate enforceable interim award for freight before the tribunal adjudicates upon the Charterers cross claims illustrates that any kind of set off is impossible. 77 Unfortunately the Arbitration Act 1996 doesn t provide in its article 39 the possibility to obtain an interim award, unless the parties agreed to confer such a power to 71 Moot Problem, p C. Hill, Maritime Law, 6 th ed., 2003, p J. Wilson, Carriage of goods by sea, 2 nd ed., 1993, n Henriksens Rederi A/S v T.H.Z. Rolimpex (The Brede) [1974] Q.B. 233; Aries Tanker Corp v Total Transport (The Aries) [1977] 1 Lloyd s Rep Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1989] 1 Lloyd s Rep Elena Shipping Ltd v Aidenfield Ltd (The Elena) [1986] 1 Lloyd s Rep. 425; Aries Tanker Corp v Total Transport (The Aries) [1977] 1 Lloyd s Rep J. Cooke and others, Voyage Charters, 3 rd ed., 2007, n

19 the tribunal. 60. In the case at hand parties doesn t agreed to confer such a power to the tribunal. This is regrettable, but irreversible. Nevertheless this (at least theoretical) possibility points out that freight is sacrosanct and no counterclaims can be set off from it. 61. In light of the above, the Tribunal should sentence the Charterers to pay the freight, either as due and owing under the charter, or as damages for the Charterer s failure to pay the same. Moreover, the Owners claim compound or alternatively simple interest of any sum found owing to them at such a rate (and at such rests) as the Tribunal sees fit V. Damages 65. The Owners contend that claims for damages, from the Charterers, are unacceptable (A), and, to the extent that the tribunal found otherwise, sums claimed by the Charterers are wrong (B). A. Claims for damages are unacceptable 66. Claims for damages are unacceptable for two reasons. Firstly, the clause 2 of the Owners standard terms prevents the parties from claiming damages after an automatic cancellation (1). Secondly, according to the clause 5, the owners cannot be liable for consequential damages, unless a proven gross negligence (2). 1. The Clause 2 prevents the parties from claiming damages after an automatic cancellation 67. It is relevant to follow the clause to the letter. In order to understand precisely what this clause involves, it is interesting to refer to the former Mutual Waiver of Recourse offered by Supplytime 89 in Annex C to that form (and in its clause 12(f) of its Part II). The former Annex C provided, together with clause 12(f) of Part II and Box 28 of Part I, for a special regime between the parties to the contract for liability for damage to property and injury and loss of life. The scope of this article is different of the Clause 2 of Reliable Tanker s standard terms, but the very sense of that latter clause is actually the same. The explanatory notes to the 1989 form evidenced that the aim of Mutual Waiver of recourse was, for the parties, to avoid entirely disputes as to their liabilities (emphasis supplied). Indeed, the sentence if charterer elects to decline, then Charter Party to be cancelled without recourse to either party whatsoever has clearly the same aim than the Mutual Waiver of recourse although its scope is 19

20 different. 68. BIMCO s reasoning for the deletion of Annex C was that The previous clause 12(f) and Annex C regarding Mutual Waiver of Recourse was deleted as it was no longer needed. The reason for this is that the Mutual Waiver of Recourse provision was originally added when there was uncertainty whether the courts would accept the knock-for-knock principle, however, over time it has been seen that the principle is widely accepted by courts. There is however no knock-for-knock principle provided by the present contract. Then the Clause 2 is to be considered as the only way to prevent any recourse to either party, as soon as the Charterers elects to decline the new laycan proposed by the owner, the charter getting automatically cancelled. 69. In that sense, the use of the word whatsoever must be analysed. According to the Stroud s Judicial dictionary, 78 "Whatsoever", as a rule, excludes any limitation or qualification, and implies that the genus to which it relates is to be understood in its utmost generality. 79 Another award points out that "The insertion of the word 'whatsoever' has been held, in several of the cases to which we have been referred, to make a great difference in the interpretation of an exempting clause, and to enlarge its operation". 80 These decisions constitute a useful clue according to which the use of this word reveals the willing of the parties to give to that clause the as broad scope as possible. That involves this clause would concern on the one hand the automatic cancellation, i.e. the Charter can be cancelled without recourse, and on the other hand the effect of this cancellation, i.e. both parties are released from any further obligation to perform the Charter or further liabilities thereunder. Consequently, the Charterer can ask no consequential damages. 70. Moreover, to the extent that the Tribunal considered some consequential damages could be asked, arbitrators must consider the Clause 5 of the Owners Standard Terms. 78 Stroud s Judicial Dictionary 8th Ed.30 June, Per Fry L.J., Duck v Bates 13 Q.B.D Per Cockburn C.J., R. v Kent Justices 29 L.J.M.C

21 2. The Owners cannot be liable for any consequential damages unless gross negligence 74. According to The Hellespont Arden (Red Sea Tankers Ltd v. Papachristidis) 81 gross negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence, but as matter of ordinary language and general impression, the concept of gross negligence seems to be capable of embracing not only conduct undertaken with actual appreciation of the risk involved, but also serious disregard or indifference to an obvious risk. 75. This reasoning was further used in a more recent decision dealing with the concept of gross negligence under English law, namely, Camarata Property Inc v. Credit Suisse Securities (Europe) Ltd, 82 case dealing with the consequences of the 2008 credit crunch and Lehman Brothers bankruptcy. Andrew Smith J considered that the relevant question is not whether generally gross negligence is a familiar concept in English law, but the meaning of the expression in these paragraphs of the [contract]. 76. In this particular case, only consequential damages created by a proven gross negligence on the part of the owner can be taken into account by the Tribunal. In order to come into conformity with these awards, the Charterers have to prove that the Owners are responsible of more than a failure to exercise proper skills and/or care constituting negligence. Nevertheless, the only grip the Charterers have with the Owners is that they failed to commence the approach voyage at such a time as to enable the Vessel to meet her laycan. In this matter, the Tribunal should take into account several things explaining why commencing the approach voyage was impossible. Firstly, the Vessel was arrested in a bunker port and local lawyers had put forward a very high figure for what the owners owed to the bunker suppliers. The owners did not decide not to pay by negligence, but because this sum was too important in relation to their own funds. That latters were not heavy enough precisely because the Charterers failed to their obligation to pay the freight before. Secondly, the decision not to ask the Protection and Insurance (P&I) Club was due to the difficulties implied by receiving another Letter Of Indemnity (LOI). In any case, not to compensate the other s party failure could never be qualified as something more fundamental than failure to exercise proper skill and/or care constituting negligence. That is not even a simple negligence. 81 [1997] 1 Lloyd s Rep [2011] EWHC 479 (Comm). 21

22 77. That is why the Tribunal could not qualify the owner s behavior as constituting a gross negligence, and consequently, could not recognize to the Charterers the rights of an action for consequential damages. 78. To the extent that the tribunal finds otherwise, he should consider the Charterers could not claim for the consequential damages as they did. B. The amount of consequential damages is wrong 79. Firstly, the Charterers have no right to any consequential damages (1), and secondly, even if they did, they would have failed in their duty of mitigation (2). 1. No right to any consequential damage 80. As demonstrated an author, 83 so far as termination itself is concerned, there is no distinction to be drawn between termination for a repudiatory breach and termination pursuant to a contractual power. In both cases, the parties are released from any primary obligations falling due after termination but are still subject to any which accrued prior thereto. 84 Nevertheless, these two modes of termination diverge in the recovery of damages. In both cases, damages may be awarded for any breach of obligations, which fell to be performed prior to termination, but it is only where the contract is terminated for repudiatory breach that a claim may be made for damages for loss of bargain, i.e. losses that accrue as a consequence of the premature determination of the contract. 81. In the leading case Financings Ltd v Baldock, 85 the principle upon which this decision was reached was stated by Lord Denning MR as follows: 86 It seems to me that when an agreement of hiring is terminated by virtue of a power contained in it, and the owner retakes the vehicle, he can recover damages for any breach up to the date of termination but not for any breach thereafter, for the simple reason that there are no breaches thereafter. 82. In that particular case, as it has been demonstrated, there is no repudiatory breach on part of the Owner. 83 Edwin Peel, The termination paradox, p See Treitel, [18.010]. 85 [1963] 2 QB 104. See also: Brady v St Margaret s Trust Ltd [1963] 2 QB 494; Charterhouse Credit Co Ltd v Tolly [1963] 2 QB 683; United Dominions Trust (Commercial) Ltd v Ennis [1968] 1 QB 54; Capital Finance Co Ltd v Donati (1977) 121 SJ 270 (CA). 86 [1963] 2 QB 104,

23 Hence, the Characters have no right to claim for any consequential damages. 83. To the extent that the tribunal finds otherwise, he should consider the Charterers has a duty of mitigation. 2. The Charterers failed in their duty of mitigation 84. Loss is not recoverable as damages if the claimant has in fact avoided the loss or if, with reasonable diligence, he could and should have avoided or lessened it Principle is often described as the duty to mitigate, which is a useful abbreviation so long as it is remembered that the duty takes effect merely as a limitation upon the innocent party s right of recovery; he is under no legal obligation to the party in breach to act in any particular way. The innocent party is only required to act as a prudent person who will bear the loss himself. The standard of care by which a claimant s conduct is to be judged may be approached by posing the question whether the loss was a reasonably foreseeable consequence of the claimant finding himself in the position he did as a result of the defendant s breach. 88 The defendant must show not just that the claimant could have acted in a way which would have lessened his losses, but also that he should have done so, as a reasonable man in the ordinary course of business given that he has been put in the position in which he finds himself by the defendant s breach. 89 Thus, he is not required, in order to reduce his claim, unreasonably to risk his own money further, or to place his commercial reputation at risk by insisting upon his full rights against third parties when it might damage his reputation to do so. 90 Similarly he is not required to start uncertain litigation, nor to recover damages from persons who are liable in addition to the defendant. However, in the context of a commercial contract, it is normally reasonable to accept an offer (or even make such an offer 91 ) of modified performance from the party in breach, if the effect would be to reduce the loss, at least if it is not made so as to prejudice the previous claim, for example by being made subject to a term 87 Julian Cooke, Timothy Young QC, John Kimball, LeRoy Lambert, Andrew Taylor, David Martowski, Remedies for Breach of the Charter, 3rd Edition, 2007, pt Vinmar International v. Theresa Navigation (The Atrice) [2001] 2 Lloyd s Rep. 1, p. 15 citing South Australia Asset Management Corp. v. York Montague [1997] A.C. 191 pp Banco de Portugal v. Waterlow [1932] A.C. 452 at p James Finlay v. Kwik Hoo Tong [1929] 1 K.B. 400, affirming [1928] 2 K.B The Solholt [1981] 2 Lloyd s Rep. 574, [1983] 1 Lloyd s Rep