Seagate Shipping Ltd v Glencore International AG

Contractual obligations are determined from the language of the contract read in its commercial and factual context. A general obligation concerning certificates, eligibility and trading requirements does not necessarily require compliance with a private, opaque vetting system, particularly where the charterparty contains detailed provisions dealing expressly with related regulatory and technical matters.

Pre-contractual negotiations remain inadmissible as a direct aid to construction, but may be considered to establish the parties’ knowledge of relevant circumstances or a common assumption about contractual words. A time charterer’s right to give orders concerning employment may require the owner to permit voyage-related vetting and inspection, even where the charterparty does not impose a continuing obligation to maintain approval.

Seagate Shipping Ltd, as owner, appealed against two arbitration awards concerning back-to-back time charters of the vessel Silver Constellation. Glencore International AG was the head charterer and Swissmarine Services SA the sub-charterer.

The arbitrators held that the charterparties required the owners to obtain and maintain RightShip approval and to permit RightShip inspections and related vetting procedures. The appeals raised questions concerning the construction of the charterparty, the admissibility and effect of pre-contractual negotiations, and the scope of the charterers’ employment orders.

1. The appeals were allowed in part. The charterparties did not require Seagate to obtain or maintain RightShip approval, but they did require Seagate to permit RightShip inspections and related vetting procedures.

2. The word “eligible” in clause 31a meant fit for selection by satisfying the relevant conditions for selection. In context, however, clauses 31a and 31b concerned legally imposed requirements and documentary evidence of compliance. RightShip approval was a private commercial requirement, not a requirement lawfully imposed by the relevant ports. Its criteria were partly undisclosed and extended beyond the physical condition of the vessel. The charterparty also contained detailed express provisions concerning classification, insurance, the ISM Code and Australian requirements. Those matters supported the conclusion that RightShip approval was not included by implication.

3. The tribunal had given undue weight to the expectation that a charterparty made in 2003 would contain an express or implied RightShip obligation. Construction required an objective assessment of the language and context, not a pre-conceived assumption about what the contract ought to contain.

4. Pre-contractual negotiations could not be used to add a gloss to the concluded terms. They could, however, be considered to establish the parties’ knowledge of the circumstances in which contractual words were used, or a common assumption giving those words an agreed meaning. The exchanges showed that Orient would not accept a RightShip obligation and that Glencore agreed to leave the charterparty unchanged. They therefore established the relevant fact or common assumption.

5. Clause 8 gave the charterers the right to direct how the vessel was to be used, subject to the charterparty. RightShip approval was obtained voyage by voyage and depended on the requirements of the relevant shipper or terminal. Permitting inspection was therefore more closely analogous to permitting shore inspectors to examine cargo holds than to a continuous classification survey. The owners’ prior co-operation and the practical effect of refusing vetting supported the tribunal’s conclusion that inspection had to be permitted.

6. The question whether the general practice of other shipowners justified an independent obligation to co-operate was unnecessary to decide and, in any event, the court was unpersuaded that it did.

Arbitration tribunals: Two awards dated 19 March 2008 held that the charterparties required the owners to obtain and maintain RightShip approval and to permit RightShip inspections and related vetting procedures.

High Court (Commercial Court): On appeals on questions of law, the court held that no continuing RightShip approval obligation arose, but that the owners were obliged to permit RightShip inspection. The question concerning industry practice was unnecessary to decide.