The implied term to have the vessel re-inspected without delay – does it apply to charterers only?
Introduction
In Pan Ocean Co Ltd v Daelim
Corporation (DL Lilac) [2023] EWHC 391 (Comm), the Commercial Court of
the High Court of England and Wales (the “Court”)
allowed an appeal in part by the charterers of a ship against an arbitration
award in favour of the owners of the ship. The Court has clarified the correct
test for finding an implication of terms in a charterparty and found an implied
term which obliged both the charterers and the owners to take reasonable steps
to cooperate and arrange a reinspection without undue delay after a failed
holds inspection. However, the Court disagreed with the arbitral tribunal on
the factual findings and ordered the arbitral award to be remitted to the tribunal
for further consideration. Nonetheless, the Court stressed that an arbitral
award should be read in a commercial and reasonable manner as a whole.
Background
The claimant charterers (the “Charterers”)
entered into a charterparty with the defendant owners of the vessel (the “Owners”)
in 2017 for a time charter carrying cargo. During the charter, the holds were
inspected by a surveyor on 16 February 2017 but were failed due to presence of
rust, paint flakes and cargo residue. On 19 February 2017, the master of the
vessel notified the agents that the vessel had been cleaned and requested for a
reinspection. The reinspection was not conducted until 4 March 2017.
The Owners submitted the case to the
arbitral tribunal (the “Tribunal”) to claim against the Charterers for
loss of hire and the cost of bunkers. The Owners contended that from 19
February 2017 until the reinspection, the vessel was in all respects ready to load
cargo and the holds were ready for reinspection, particularly when the master
so advised on 19 February 2017. The Owners argued that the charterparty
contained an implied term that required the Charterers to carry out an
reinspection with reasonable diligence and without undue delay, and
accordingly, the Charterers, having arrange the reinspection after a lapse of
12 days, was in breach of the implied term. Therefore, the Owners argued that
the Charterers were not entitled to treat the vessel as off-hire after 19
February 2017 as the loss of time was caused by the Charterers’ breach of their
obligation to arrange for reinspection with diligence.
The Charterers’ case was that it was the
terminal having advised the vessel to shift off the berth, right before the
master advised that the vessel was ready for reinspection. The terminal further
advised the agents that hold inspections could only be carried out once a
vessel was berthed, and therefore, reinspection can only take place when a
berth became available.
The Tribunal found in favour of the Owners
and accepted that the Charterers were under an implied obligation to have the
vessel re-inspected without delay when the vessel had been cleaned and the
master called for a reinspection. Accordingly, the 12-day delay was considered
as unreasonable by the Tribunal (the “Award”).
The issue
The question of law in dispute
is whether there was an implied term to the time charter obliging the
Charterers to have the vessel re-inspected without delay when the vessel was
off hire after a failed holds inspection and the Master advised that hold
cleaning had been completed and called for a reinspection.
The Charterers argued that the
Tribunal had erred in law by applying the wrong test when implying the terms
and the Tribunal should have found that the parties were obliged only to
exercise reasonable diligence to cooperate and conduct a reinspection of the
cargo holds. Therefore, the Charterers contended that they were not responsible
for the delay and so the Award shall be varied to dismiss the Owners’ claim
regarding loss of hire and the cost of bunkers due to the delay in
reinspection.
Appeal allowed
In allowing the Charterers’ appeal,
the Court has succinctly summarised the test for determining implication of
terms in a charterparty, namely, whether on an objective basis, the term to be
implied is necessary to give business efficacy to the contract or is so obvious
(to an objective observer at the time of contracting) that it goes without
saying that it was included in the agreement. Five requirements for an implied
term shall be satisfied: (1) it must be reasonable and equitable; (2) it must
be necessary to give business efficacy to the contract; (3) it must be so
obvious that it goes without saying; (4) it must be capable of clear expression;
and (5) it must not contradict any express term of the contract. The Court
ruled that the Tribunal did apply the correct legal test for implied terms
based on necessity and obviousness.
However, the Court disagreed
with the Tribunal and took the view that any implied term had to oblige both
parties, instead of just the Charterers, to take reasonable steps to cooperate
to organise a reinspection without undue delay. The Court further ruled that
the implied term did not oblige an immediate reinspection upon the master
advising that the holds were ready for reinspection. The implied term only
requires reasonable diligence to be exercised to have the vessel reinspected
without undue delay. Therefore, the Court held that the Tribunal was wrong in
law to hold that the vessel was immediately back on hire once the master had
notified the agents for reinspection on 19 February 2017. The vessel was only
back on hire from the point when reinspection should have been arranged in
compliance with the implied obligation to exercise reasonable diligence to have
the vessel reinspected without undue delay. Accordingly, the case was remitted
back to the Tribunal for further consideration.
In its reasoning, the Court
has also made it clear that when interpretating arbitral awards, the Courts would
strive to uphold them and read them as a whole in a reasonable and commercial
manner, so as to construe an award in such a way to make it valid rather than
invalid.
Key takeaways
This case serves as a helpful reminder as to the correct test for
finding an implication of term in a charterparty. Subject to circumstances of
each case, terms implied will usually impose bilateral obligations on both
parties to take actions by exercising reasonable diligence. Such implied
obligation usually is not a strict obligation obliging one party only. The
Court has also made it clear that Courts will strive to uphold an arbitral
award and when interpretating the award, it will be read as a whole in a
commercial and reasonable manner.
For enquiries,
please feel free to contact us at: |
E: shipping@onc.hk T: (852)
2810 1212 19th Floor, Three Exchange Square, 8 Connaught
Place, Central, Hong Kong |
Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
or assistance is needed, please contact our solicitors. |
Published by ONC Lawyers © 2023 |