Nippon Yusen Kubishiki Kaisha v Golden Strait Corporation

Contractual construction begins with the words chosen by the parties, read in their factual and commercial context. The court may depart substantially from ordinary wording only where the context or resulting construction shows that something has gone wrong in the drafting. A non-binding negotiating document is not ordinarily part of the admissible factual matrix, although a concluded agreement made during negotiations may be relevant. An option to charter a vessel back on a back-to-back basis is not an option to redeliver the vessel and terminate the existing charter. The court should give effect to the commercial arrangement expressed by the parties without distorting the language or undertaking substantial textual surgery.

Golden Strait Corporation chartered the vessel MT Golden Victory to Nippon Yusen Kubishiki Kaisha for seven years under an amended Shelltime 4 charterparty and related memorandum of agreement. The memorandum gave the charterers options, after three and five years, to charter the vessel back to the owners’ parent company, Golden Ocean Limited, on a back-to-back basis.

The charterers treated the provision as an option to terminate the charter by redelivery. They redelivered the vessel after three years. The owners treated that conduct as a repudiatory breach. The sole arbitrator found for the owners, and the charterers appealed to the Commercial Court on a question of law under the charterparty. The central issue was whether the memorandum permitted redelivery and termination or only a back-to-back subcharter.

1. Appeal dismissed. The arbitrator’s interim declaratory award in favour of the owners was upheld.
2. The proper approach to construction was to read the contract in its factual and commercial context, beginning with the words selected by the parties. Substantial alteration of the wording or syntax would be justified only if the context, or the construction otherwise produced, demonstrated that something had gone wrong in the drafting.
3. The fixture memorandum was not a concluded or legally binding agreement. It was a step in the negotiations and therefore did not ordinarily form part of the admissible factual matrix. Even taking it into account, as the owners had conceded, it did not assist the charterers. The references to the owners and to chartering the vessel back were consistent with the corporate structure and a back-to-back arrangement.
4. The wording of the memorandum did not grant an option to redeliver the vessel at the end of three or five years. The references to chartering back to Golden Ocean Limited, on the same terms, meant that the charterers could transfer the practical burden and benefit of the continuing charter by a back-to-back subcharter. A charter back was not a redelivery.
5. The commercial purpose supported that construction. The arrangement bridged the owners’ need for a long-term charter and the charterers’ concern about future use of the vessel. Giving the charterers a termination right would have required substantial and unjustified surgery to the contractual language. The boilerplate provision preserving other charterparty terms did not alter the result.

• Arbitration: The sole arbitrator made an Interim Declaratory Award on 16 September 2002 in favour of the owners.
• High Court (Commercial Court): The charterers’ appeal on a question of law was dismissed.