Canmer International Inc v UK Mutual Steamship Assurance Association (Bermuda) Ltd

A letter of undertaking must be construed objectively in its commercial context, but the court must enforce the bargain the parties actually made. Commercial common sense cannot justify reading in terms which contradict clear wording, absent obvious mistake, rectification or a proved collateral contract. An undertaking by a P&I club is not an autonomous demand bond unless its language clearly supports that characterisation. Where the undertaking promises payment of sums due from the owner, the claimant must establish that underlying liability. Payment is consensual: an unconditional tender which the creditor has not accepted does not discharge the debt. Separate arbitration awards create separate rights and liabilities, and satisfaction of one award does not discharge liability under another.

Canmer, the time charterer of the vessel Rays, claimed under a letter of undertaking issued by the defendant P&I club to secure liabilities arising from three related arbitration awards concerning cargo damage. The Club contended that the undertaking covered costs only, that Canmer was estopped or bound by a collateral agreement, that the document should be rectified, and that the underlying debt had been discharged by a payment to another claimant under a separate award.

The central issues were the proper construction and legal character of the undertaking, whether the asserted estoppel, collateral contract or rectification was established, and whether payment or satisfaction under one award discharged liabilities under the others.

1. Construction. The claim succeeded. The letter of undertaking, read in its commercial context, expressly covered both the Time Charter Award and legal costs connected with the three arbitrations. Its reference to the time charter and to demands pursuant to the final arbitration award could not sensibly be confined to costs. The court rejected the contention that the heading’s reference to matters in particular concerning costs meant exclusively costs.
2. The court applied the ordinary principles of contractual construction stated in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Bank of Credit and Commerce International S.A. v Ali and Others [2002] 1 AC 251 and Static Control Components (Europe) Ltd v Egan [2004] 2 Lloyd’s Rep. 429. Commercial context is relevant, but the court cannot substitute a bargain it considers more commercially attractive for the bargain expressed by the parties. No obvious mistake or factual basis for rectification was established.
3. The alleged estoppel, collateral contract and rectification defences failed. There was no unequivocal representation, shared assumption, agreement or unconscionability sufficient to prevent Canmer claiming the cargo sum. The Club’s unilateral view that payment to another claimant would discharge Canmer’s liabilities could not create an estoppel.
4. The undertaking did not impose autonomous primary liability merely because payment was required upon written demand pursuant to an arbitration award. Applying the approach in Marubeni v Government of Mongolia [2005] EWCA Civ 395, the wording made the phrase “such sum as may be due” applicable to all three limbs. Canmer therefore had to establish that the sum claimed was due from the owner.
5. That requirement was satisfied. Payment requires the creditor’s assent. The remittance to ConAgra Naples was not accepted and remained held to the Club’s order. Even if it had been accepted, payment under the Bills of Lading Award could not discharge Canmer’s separate liability under the Voyage Charter Award or the owner’s separate liability under the Time Charter Award. The three awards were independent and created separate rights and liabilities. Judgment was therefore given for Canmer, with further argument reserved if necessary as to the form of order.