B. S. & N. Limited (BVI) v Micado Shipping Limited (Malta)

A contractual term is a condition where the contract, read in its commercial and factual context, shows that precise compliance was intended to be essential. In mercantile contracts, certainty is a particularly important consideration when assessing time stipulations. An express cancellation provision is powerful evidence, but its absence is not decisive where the contractual scheme otherwise requires consistent treatment.

A clause requiring shipowners to obtain an oil major’s approval within 60 days, introduced by a guarantee and linked to provisions concerning the maintenance of other approvals, was a condition. Failure to obtain the approval within that period therefore entitled the charterers to treat the breach as repudiatory and terminate.

Micado Shipping Limited chartered a vessel to B. S. & N. Limited under a time charterparty. Clause 46 recorded existing approvals from four major oil companies and provided that the owners guaranteed to obtain Exxon approval within 60 days. It also provided for reduced hire while an approval was missing and a right to cancel if an approval lost during the charter was not reinstated within 30 days.

Exxon approval was not obtained within the relevant period. The charterers cancelled and claimed damages. Aikens J held that the 60-day obligation was an intermediate term. After trial, Timothy Walker J found no repudiatory breach. The appeal concerned whether the 60-day obligation was a condition, so that its breach gave an immediate right to terminate.

1. Appeal allowed. All three members of the court concluded that the obligation to obtain Exxon approval within 60 days was a condition of the charterparty. The charterers were therefore entitled to treat failure to obtain approval within that period as repudiatory and terminate.
2. The classification of a contractual term depends on the true construction of the contract. A term may be a condition where the language, the nature of the contract, the subject matter or the circumstances show that precise compliance was intended to be essential. The word “condition” need not be used. The approach in Bunge Corporation v Tradax Export SA [1981] 2 Lloyd's Rep 1 was applicable, particularly because this was a mercantile time clause.
3. The court treated certainty as an important commercial consideration. If the term were merely intermediate, the charterers would be left uncertain about when the absence of approval became sufficiently serious to justify termination. That uncertainty was inconsistent with the commercial purpose of the clause.
4. The clause had to be construed consistently. The loss of any one approval, including Exxon approval once obtained, entitled the charterers to cancel if it was not reinstated within 30 days. The $250 daily reduction was primarily an interim discount while the owners were given time to obtain or reinstate approval; it did not necessarily limit the remedy after the relevant period expired.
5. The absence of an express cancellation provision for failure to obtain Exxon approval was not decisive. The word “guarantee”, the importance of the approvals to the charterers’ ability to sub-charter, and the need for consistent treatment showed that the 60-day period was an outside limit. The court declined to apply the gravity-of-breach approach associated with Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
6. The order was: appeal allowed; an agreed minute of order to be provided. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): appeal from the interlocutory construction ruling of Aikens J dated 2 July 1999. The court allowed the appeal.
• High Court, Commercial Court: after trial, Timothy Walker J held that there had been no repudiatory breach and dismissed the charterers’ substantive claims; the judgment was reported at [2000] 2 LLR 37.