The case of Golden President Shipping Corp v Bocimar NV concerned an appeal to the High Court by the owners of the “Channel Alliance” against an arbitration award in favour of charterers in respect to the applicability of a profit sharing agreement within an NYPE charter to the extended charter period exercised at charterers’ option. The respondents, Bosimar NV (“the charterers”), had chartered the vessel for 5 years on NYPE form, which was amended to include an option to extend for a 6th and 7th year. Additionally, clause 35 of the charter also provided for a further 2 months plus or minus at charterers’ option.
The profit sharing agreement appeared in Clause 98 of the charter. Clause 98 provided for profits to be shared on a “50/50 basis…as compared to the floor rate of charter hire i.e. USD 13,750/day” Clause 98(1) went on to state that the profit made would be calculated by comparing the “…floor rate with the average rate reflected in the Baltic Cape Size Index (… to be adjusted upwards by $975 per day or pro rata to reflect the value of the MS Channel Alliance compared with the “index” vessel) during any year of the basic charter period.”
The dispute concerned whether this profit sharing agreement applied to any extended period. Clause 98 (6) read: “For profit sharing purposes, optional year(s), if declared to be considered on their own.”
In determining whether the profit sharing clause in the charterparty applied to the basic 5 year period only or whether it extended to include the optional 6th and 7th years as well, Mr Justice Cooke examined the construction of the entire clause in the context of the charter as a whole. In the learned judge’s opinion, the structure of the clause was clear. Paragraph 1 set out the basic obligation to share profits on a 50/50 basis over the basic charter period of 5 years. Paragraph 2 provided for the contingency of the Baltic Cape Size Index ceasing to exist. Paragraph 3 set out details of the Index; adding nothing to the issue of construction. The 4th and 5th paragraphs set out the set-off provisions by which a balance was to be struck in the form of ‘netting off’ profits or loss and for the time and manner of payment of amounts due. The 4th paragraph specifically provided for the profit or loss of each year of the basic charter period to be assessed by making the necessary comparison over the days of service in that year, excluding off-hire, and 5th paragraph made it clear that the ‘netting off’ was to be effected on a five year basis whilst providing for payments to be made as advances in respect of owners’ share of profit following the end of year assessment, provided there was an overall net profit at that stage in light of previous years. It also provides for claw back by the charterers on the basis of an anticipated loss in any particular year where advances had already been made in respect of profits.
In the Judge’s common sense construction of the clause he noted that the wording of paragraph 6, whilst not capable of a great deal of analysis, plainly required the optional years, if exercised, to be considered in the context of profit sharing and that the words “on their own” equally plainly required these years to be considered individually, as opposed to being taken in conjunction with the earlier five years.
Mr Justice Clarke concluded that even from a commercial perspective both parties must have agreed that the optional years would be subject to the profit share clause because the charterers would only exercise their option in respect of the 6th and 7th years in the event of a favourable market at the time or a foreseen improvement in the market over the optional years. The owners would be bound to accept the exercise of the option and have no further opportunity to consider the rates at the time or the future movement of the market. As such he considered it to be commercially logical for owners to be able to take a share of the profit in respect of any optional year, without any claw back of losses.
In allowing the appeal, the Clarke J awarded owners a 50% share of the profits for the two optional years and two months, totalling $14,679,557.84, together with interest and the costs of the appeal.
