Ark Shipping Company LLC v Silverburn Shipping (IOM) Ltd

Whether a contractual term is a condition or an innominate term is a question of construction. A term is a condition only where the parties’ intention to give it that status is sufficiently clear. Where breach may have consequences ranging from trivial to very serious, the term is generally innominate. Certainty is important but must be balanced against the risk of disproportionate consequences for minor breaches. In a long-term bareboat charterparty, the obligation to keep the vessel in class and maintain other required certificates was innominate. Its status as a binary and important obligation did not outweigh the wording, contractual context, continuing duration, related insurance provisions and range of likely consequences. A serious breach might nevertheless be repudiatory.

Owners granted Charterers a 15-year bareboat charter of the vessel Arctic under an amended BARECON 89 charterparty. Clause 9A required Charterers to maintain the vessel in good repair and to keep its classification and other required certificates in force at all times.

The classification certificates expired while the vessel was undergoing repairs. The arbitrators held that the classification obligation was not a condition. On an appeal under section 69 of the Arbitration Act 1996, Carr J reversed that conclusion and held that it was a condition: [2019] EWHC 376 (Comm); [2019] 1 Lloyd’s Rep 554. The appeal concerned only whether the obligation was a condition or an innominate term.

The appeal was allowed. Gross LJ gave the leading judgment, with McCombe LJ and Leggatt LJ agreeing.

1. The classification of a contractual term is a matter of construction, not an evaluative exercise. The court must ascertain the objective meaning of the contract as a whole, considering context and commercial common sense through an iterative process, as explained in Wood v Capita Insurance Services Ltd [2017] UKSC 24 and Spar Shipping [2016] EWCA Civ 982.

2. A term is a condition only where the parties’ intention to give it that status is clear. If a term is not clearly a condition or only a warranty, and breach may produce consequences ranging from trivial to very grave, it is innominate. Certainty is relevant but does not create a presumption that terms are conditions.

3. The obligation in clause 9A was not expressed to be a condition. It was not a paradigm time clause or condition precedent and involved no material interdependence between contractual obligations. It appeared within a maintenance clause alongside connected physical-maintenance obligations, which were subject to a reasonable-time remedy rather than immediate termination.

4. The reference to other required certificates was either redundant on Owners’ construction or potentially extensive, covering matters from minor to serious. The insurance provisions also undermined Owners’ argument: failure to maintain P&I insurance did not itself entitle Owners to terminate. The court had to consider the actual amended charterparty, including the absence of a mortgage and the irrelevance of the St Kitts Registry correspondence.

5. The relevant inquiry concerned likely consequences, not merely the actual consequences in this case. Loss of class could be grave, but could also result from a short administrative lapse with no serious effect. The continuing 15-year obligation therefore risked giving trivial breaches disproportionate consequences. The obligation was innominate, although a grave breach could still be repudiatory.

• Court of Appeal (Civil Division): allowed Charterers’ appeal and held that the classification obligation was an innominate term.
• Queen’s Bench Division, Commercial Court: Carr J allowed Owners’ appeal under section 69 of the Arbitration Act 1996 and held that the obligation was a condition: [2019] EWHC 376 (Comm) ; [2019] 1 Lloyd’s Rep 554.
• Arbitration: the maritime arbitrators held that the obligation was not a condition and dismissed Owners’ application for relief.