Due Diligence - Obligation to Maintain II

September 2008

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Following Cooke J’s judgment in the “Elli”/”Frixos” case in August last year (see website article Due Diligence – Obligation to Maintain ), the Court of Appeal has now ruled on owners’ appeal. 

Readers will recall that the case focused on new MARPOL regulations concerning the carriage of fuel oil which came into effect in April 2005. As at October 2003, heavy grades of oil could only be carried within the EU in double-hulled vessels.   MARPOL regulation 13H required, in tandem, as of April 2005, that fuel oil cargoes be carried in double-hulled vessels only, save for an exemption, at its essence, for vessels with “double-sides not used for the carriage of oil and extending to the entire cargo tank length.” A fully double-sided vessel is one where each cargo tank is protected on the outside by ballast tanks, forming a barrier to the cargo tanks in the event of a collision and thus reducing the likelihood of breach. 

The appellants were the owners of the vessels, on charter on the Shelltime 4 form (amended) to the respondent. The cargo description clause expressly included fuel oil.  The vessels had been described in the charters as “double-sided.” They were not double-bottomed.  

Both parties essentially presented the same case to the Court of Appeal, owners submitting that Mr Justice Cooke had failed to refer to the background facts of the case when reaching his decision on construction of the contract. The Appeal Court declined to agree and found that owners’ real difficulty was that “none of the matters on which owners have sought to rely take them very far on what is largely a question of construing the printed terms of a well-known and standard form of charter.” 

Indeed, the court noted that the standard form is so common place it has the “accolade” of being one of the standard texts commented upon by Wilford and as such, facts peculiar to the making of the charter are unlikely to carry much weight against the words used in the charter.  

The court also found that analysis of the previous authorities did not establish any principle that the terms as to a vessel’s fitness to carry or cargo or seaworthiness relate only to the physical and exclude legal fitness. In fact in a number of cases the seaworthiness obligation has been held to extend to possession of necessary documents. 

In The “Madeleine” (1967), concerning the absence of a deratting certificate at the time of delivery, Roskill J held: 

“There was here an express warranty of seaworthiness and unless the ship was timeously delivered in a seaworthy condition, including the necessary certificate from the port health authority, the charterers had the right to cancel...” 

A clear authority to the effect that documents required by law must exist before a vessel is fit for cargo service and contrary to any submission that seaworthiness encompasses only the physical. 

Turning to the Shelltime form itself, the Court held that clauses 1(g) and 52 put the matter beyond a doubt in any event. 

Clause 1(g) read: 

At the date of delivery of the vessel under this charter 

(g) she shall have on board all certificates, documents…required from time to time by any applicable law to enable her to perform the charter service without delay.” 

(emphasis added) 

The apparent conflict between the opening words and the words in the body of the clause as to the time at which the requirement is imposed, is resolved by application of the legal principle that the particular should prevail over the general (generalia specialibus non derogant.) 

As for clause 52, that contained a warranty by owners that the vessel was in all respects eligible under, inter alia, applicable laws and conventions for trading to and from ports specified in the charter with all necessary certificates to be carried on board and contained a further warranty as to compliance with MARPOL. 

The first of these warranties was not limited to the point of delivery only. More significantly, the warranty as to compliance with MARPOL is expressly phrased as “does and will, fully comply...” Without the necessary exemption the vessel did not comply with MARPOL and thus on any view there was a breach of clause 52. 

Of a more practical nature, the court noted that owners’ claim they would have to rebuild the vessels was exaggerating the position when Lloyds’ solution to the problem was to make the slop tanks void spaces. Although requiring some construction work this could not be termed rebuilding. 

At the time of writing, it is not known whether owners are seeking leave to appeal to the House of Lords. 

Golden Fleece Maritime Inc & Anor –v- ST Shipping & Transport Inc “Elli”/”Frixos” [2008] EWCA Civ 584, 23 May 2008