HBC Hamburg Bulk Carriers GmbH & Co KG v Huyton Inc

Where a charterparty indemnity covers losses or expenses arising from a charterer’s failure to discharge cargo at the agreed port, the question is whether the expense was caused by that failure. An expense required for the amended voyage, but not for the original voyage, falls within the indemnity. The owner’s separate liability under a head charter does not alter that conclusion unless it formed part of the parties’ relevant background knowledge. Contractual construction remains a unitary exercise involving the wording, relevant surrounding circumstances and commercial purpose.

The owners appealed under section 69 of the Arbitration Act 1996 against an arbitration award concerning the costs of transiting the Suez Canal. The parties had agreed to change the discharge port from Djibouti to Ain Sukhna and then to Damietta. The addenda required the charterers to indemnify the owners against losses, expenses and damages arising from the charterers’ failure to discharge at Djibouti.

The tribunal held that the indemnity covered only additional expenses which would not have been incurred in any event. It therefore rejected the claim for the full canal costs, allowing only the additional cost of transit in ballast. The central issue was whether the owners’ liability to pay canal dues under a separate head charter prevented the canal costs from being expenses arising from the charterers’ failure.

1. Appeal allowed. The tribunal’s conclusion was wrong in law.
2. The court applied the settled principles of contractual construction. Construction is a unitary exercise involving the language used, the relevant surrounding circumstances and what a reasonable person with the available background knowledge would have understood the parties to mean. Commercial common sense may assist where there are two possible constructions.
3. The commercial purpose of the addenda was to enable the charterers to bring the voyage to an end at Damietta and to require them to pay the extra time, cost and expense involved in performing the amended voyage. Paragraph (v) of addendum no. 1 therefore required the court to ask whether the expense arose from the charterers’ failure to discharge at Djibouti.
4. The Suez Canal costs were not required for the original voyage to Djibouti. They were required for the amended voyage to Damietta, because that voyage necessitated passage through the Canal. They were therefore expenses arising from the charterers’ failure and fell within the indemnity.
5. The owners’ obligation under the head charter to pay canal dues on redelivery at Port Said was not part of the background knowledge shown to have been available to the parties. It was consequently irrelevant to construction and application of the indemnity. In any event, the owners could recover the difference between the cost of the original and amended voyages as damages, including the Canal expense.
6. The fact that the owners might recover from the charterers an expense also payable to the head owners did not create an impermissible windfall or prevent recovery under the indemnity.

• Arbitration tribunal: rejected the claim for the full Suez Canal costs, allowing only the additional cost of transit in ballast.
• High Court (Commercial Court): allowed the section 69 appeal and held that the full Canal costs were recoverable under the indemnity.