Ocean Marine Navigation Ltd. v Koch Carbon Inc

An off-hire clause must be construed according to its wording and commercial context. A charterer who procures the vessel’s arrest during the charter cannot rely on the clause to avoid paying hire unless the contract uses sufficiently clear words. The innocent party generally has an option whether to accept a repudiation or keep the contract alive and claim the contractual price. The exception is narrow. The contract-breaker must show that the innocent party has no legitimate interest in performance, that damages are an adequate remedy, and that keeping the contract alive would be unreasonable in an extreme case. Damages for repudiation are assessed by reference to the contractual performance that would have occurred, including hire up to contractual redelivery.

The claimant owners appealed against an interim final arbitration award concerning the time charter of the vessel The Dynamic. The charterers had arrested the vessel to obtain security for performance claims shortly before the asserted redelivery. The parties disputed whether hire continued during the arrest, whether redelivery was effective and repudiatory, whether the owners had to accept the repudiation, and how any damages should be calculated.

The arbitrator held that hire continued, treated the purported redelivery as ineffective and repudiatory, and concluded that the owners were not entitled to hire or damages on the reasoning adopted. The appeal concerned the proper construction of the arrest clause, the legal test governing election to keep a contract alive, and the correct measure of damages.

1. Arrest and hire. Clause 60 was not intended to cover an arrest procured by the charterer during the currency of the charterparty. Clearer wording would have been required before the charterer could rely on its own arrest to suspend hire. The arbitrator’s construction disclosed no error of approach, and the charterers’ appeal on this issue was rejected.

2. Redelivery and repudiation. The owners’ appeal on the redelivery and repudiation issues was rejected. Both parties had proceeded in the arbitration on the basis that the charterers were in repudiatory breach. Those issues had not been properly submitted for determination, so the owners could not rely on the arbitrator’s failure to decide them in their favour.

3. Election to keep the contract alive. The general rule in White and Carter (Councils) Ltd v McGregor [1962] AC (HL. Sc) 413 is that an innocent party may accept a repudiation and claim damages, or reject it, keep the contract in force and claim what is due. The exception applies only in extreme cases. The contract-breaker bears the burden of showing that the innocent party has no legitimate interest in performance, that damages would be adequate, and that continuing the contract would be unreasonable. The arbitrator’s reasoning did not clearly apply that test and contained indications to the contrary. Issue (4) was therefore remitted.

4. Damages. If the owners were entitled to damages, the broad compensatory aim was to place them in the position they would have occupied had the charterparty been performed. Damages were to be assessed by reference to the hire that would have been earned until contractual redelivery under clauses 4 and 88. Losses caused by the arrest, rather than by the repudiation, were not recoverable as damages for the repudiatory breach. Issue (5) was remitted for reconsideration with issue (4).

The judgment was an appeal from an interim final arbitration award made by Mr Christopher Moss on 3 September 2002 and amended on 28 October 2002. Leave to appeal was granted by Morison J on 7 March 2003. The award was remitted for further consideration of issues (4) and (5).