English Commercial High Court (QBD): Whether The Charterer’s Obligation To Maintain Vessel’s Class Under BARECON ’89 Form Is An Absolute Obligation?

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In Silverburn Shipping (IoM) Ltd v. Ark Shipping Company LLC, [2019] EWHC 376 (Comm), the English Commercial High Court dealt with a charter party agreement on an amended standard BARECON ’89 form. The question before the Court was whether the obligation to maintain the class at all times casted upon the charterers under Clause 9A) of the Charterparty agreement was an absolute obligation or merely an obligation to reinstate expired class certificates “within a reasonable time”. The incidental question which Court was required to decide was whether such classification obligation is a condition precedent or an innominate term in the Charterparty. After analysing the line of authorities, the Court inter alia held that the classification obligation in Clause 9A) is both an absolute one and a condition of the Charterparty. Detailed case analysis given below:

Factual Matrix

The owner and charterer of the Vessel entered into a Charterparty agreement on an amended standard BARECON ’89 form. Clause 9A) of the Charterparty (“Clause 9A)”) provided that Charterers “shall keep the Vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times.” Later, the owners terminated the Charterparty alleging that the Charterers were in breach of Clause 9A) and demanded the return of the Vessel. Charterers resisted that demand, denying any breach and contending that the Charterparty remained alive.

Thereafter, the owners applied to the Arbitral Tribunal on an urgent basis for a Partial Final Award for a declaration that the Charterparty had been lawfully terminated inter alia due to Charterers’ breach of Clause 9A) and requesting relief that included an order for delivery up of the Vessel under Section 48(5) of the English Arbitration Act, 1996.

Clause 9A of the Charterparty

9 Maintenance and Operation

A – 

The Vessel shall during the charter period be in the full possession and at the absolute disposal for all purposes of the Charterers and under their complete control in every respect. The Charterers shall maintain the Vessel, her machinery, boilers, appurtenances and spare parts in a good state of repair, in efficient operating condition and in accordance with good commercial maintenance practice and, except as provided for in Clause 13 (I), they shall keep the Vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times. The Charterers to take immediate steps to have the necessary repairs done within a reasonable time failing which the Owners shall have the right of withdrawing the Vessel from service of the Charterers without noting any protest and without prejudice to any claim the Owners may otherwise have against the Charterers under the Charter.

Award

The Tribunal dismissed Owner’s application on the following grounds

  • drawing analogy with NYPE form the tribunal observed that the wording of the Charterparty under NYPE form does not impose an absolute obligation regarding maintenance but merely an obligation to exercise reasonable diligence;
  • that this is an intermediate obligation (and not a condition of the charter) which would allow termination of the charter only if any breach was serious enough to deprive the party of the substantial benefit of the charter;
  • that there should not be much difference as concerns the contractual obligations set out in Clause 9A) of the Charterparty in comparison with the NYPE form;
  • that the Charterers’ obligation to maintain and repair the Vessel goes hand in hand with and is part and parcel of their obligation to maintain class.

The above decision of the Tribunal is appealed before the English Commercial High Court in the present case.

Parties Contentions

The Owners contended:

  • that the classification obligation is in the nature of a condition;
  • that the obligation to keep the Vessel in class is an integral feature of a bareboat charterparty. Loss of class is likely to have potentially immediate and irreversible consequences for owners i.e. right of withdrawing the Vessel from service of the Charterers;
  • that matters of class are matters affecting status and not seaworthiness.

The Charterer’s contended:

  • that there was no dispute that there was a “technical breach” by Charterers of the obligation to maintain the Vessel’s class. However, the Tribunal determined that it did not give rise to an immediate right on the part of Owners to withdraw the Vessel;
  • that the overall purpose of Clause 9A) was to put the Vessel at the absolute disposal for all purposes of the Charterers. The purpose of the Charterparty overall was not to keep the Vessel maintained but to give full possession to Charterers. Maintenance is simply ancillary to this.

Judgement

The Court held:

  • that the classification obligation was an absolute one to keep the Vessel with unexpired classification of the class and with other required certificates in force at all time;
  • that this is the natural and ordinary meaning of the second sentence of Clause 9A). That sentence contains on the one hand a clause containing a maintenance obligation and on the other, a clause containing a classification obligation, the two being separated by the use of the word “and” between the two separate clauses in the sentence;
  • the two obligations may be related, but they are not “part and parcel of” a single obligation as the Tribunal appears to have held;
  • comparisons with the positions under time charters (NYPE form) on different wording cannot legitimately affect this construction;
  • the nature of the obligation must depend on the exact words used and to be construed in their own context;
  • there is a natural and ready distinction to be drawn between a Vessel’s physical condition/maintenance status and its classification status;

Thus, the Court concluded that the classification obligation was an absolute one.

Further, the Court also held that the classification obligation is to be construed as a condition of the Charterparty because:

  • the classification obligation creates an obligation on Charterers breach of which is immediately, readily and objectively ascertainable;
  • charterers’ obligation to keep certificates valid is an integral feature of a bareboat charter

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