MSC Mediterranean Shipping Company SA v "Tychy", Owners Of Ship

A novation must be established on the civil standard of proof, but clear evidence of an intention to replace an existing contracting party will usually be required. Contractual meaning is assessed in the context of admissible surrounding circumstances, including the parties’ prior dealings, while previous negotiations and subjective intentions remain excluded from construction. Subsequent conduct cannot be used to construe the meaning of an agreement, although it may establish an estoppel by convention or reassure the court that its construction reflects the parties’ intention. A parent company’s agreement to discharge a subsidiary’s debts does not, without sufficient contractual language, make the parent a replacement charterer. Obligations under a free-standing guarantee do not fall within the relevant Supreme Court Act 1981 section 21(4)(b) jurisdiction in rem.

MSC claimed more than $6 million in unpaid slot charter hire from Polish Ocean Lines (POL) in consolidated Admiralty actions in rem concerning the vessel TYCHY. David Steel J held that POL had remained the slot charterers under the relevant Memoranda of Decisions and was liable in personam and in rem.

POL appealed. It argued that POL Atlantic (POL-A), its subsidiary, had replaced it by a novation in March 1996. The Court of Appeal had to determine the effect of that novation, the meaning of a February 1999 addendum under which POL agreed to make payments, and whether the resulting claims fell within Admiralty jurisdiction.

1. Appeal allowed. The Court of Appeal held that POL-A had replaced POL as slot charterer, operator of the trans-Atlantic service and party to the Memoranda of Decisions by the March 1996 exchange of faxes.
2. In deciding whether a novation had occurred, the court applied the civil standard of proof. Since an existing contract was being replaced, clear evidence of an intention to effect a novation was ordinarily required. The March fax referred to POL-A taking over the service, and the reply objectively confirmed the agreement. The prior dealings, including the December 1995 letter and the May 1995 discussions, formed admissible commercial background.
3. The subsequent conduct strongly supported the construction. POL-A was invoiced, operated the service, issued bills of lading, joined the relevant conference, negotiated variations and assumed payment obligations. If the faxes had been ambiguous, that conduct would also have supported an estoppel by convention. Subsequent conduct could not, however, be used to construe the words of the March agreement itself.
4. The February 1999 addendum did not effect a re-novation. Its natural meaning was that POL, as parent, undertook to discharge POL-A’s debts and purchase future slots on POL-A’s behalf. The obligations were free-standing obligations in the nature of a guarantee.
5. Those obligations were not obligations relating to the use or hire of ships of which POL was charterer. MSC’s claims therefore did not fall within Supreme Court Act 1981 section 21(4)(b). The issue whether POL had submitted to the court’s in personam jurisdiction, and the consequences if it had, were remitted to David Steel J, who was better placed to assess the procedural history. The costs below were also remitted.

• Court of Appeal (Civil Division): appeal allowed, with the jurisdiction and remaining in personam issues remitted to David Steel J. [2001] EWCA Civ 1198.
• Admiralty Court, Queen’s Bench Division: David Steel J held that POL had remained slot charterers and was liable to MSC. The citation of that decision is not stated in the judgment.
• Earlier Court of Appeal proceedings: an interlocutory jurisdiction decision concerning slot charterers was upheld, reported at [1999] 2 Lloyd’s Rep 11.