Silverburn Shipping(IoM) Ltd v Ark Shipping Company LLC (M/V "ARCTIC")

In an amended bareboat charter, an obligation requiring charterers to keep a vessel’s classification and required certificates in force at all times is an absolute obligation. It is distinct from obligations concerning the vessel’s physical maintenance and repair. A clause requiring immediate steps to carry out repairs within a reasonable time does not qualify or dilute that classification obligation where the wording separates the obligations.

The classification obligation is also a condition of the charterparty. Its breach is objectively ascertainable, normally has significant commercial and regulatory consequences, and does not create the disproportionate consequences associated with trivial breaches. The court may interfere with an arbitral award under section 69 of the Arbitration Act 1996 where the tribunal has erred in construing the contractual obligation.

The claimant owners appealed under section 69 of the Arbitration Act 1996 against a partial final award concerning a 15-year bareboat charter of M/V “ARCTIC”. The charterparty was based on the BARECON ’89 form.

The vessel’s classification certificates expired while it was undergoing repairs. The owners terminated the charterparty and sought delivery up. The arbitral tribunal held that the charterers had only an obligation to reinstate expired certificates within a reasonable time, that the obligation was intermediate rather than a condition, and that breach had not been proved.

The appeal concerned whether the classification obligation was absolute and whether it was a condition of the charterparty.

1. The appeal was allowed. The classification obligation in Clause 9A) was both absolute and a condition of the charterparty. The award was to be varied in principle so that the owners were entitled to terminate by their notice and obtain delivery up of the vessel.
2. The obligation to keep the vessel with unexpired classification and required certificates in force at all times had its natural and ordinary meaning. The maintenance obligations and the classification obligation were separate clauses joined by the word “and”. The latter was distinct and additional, and was essentially documentary. Charterers could breach it without breaching the physical maintenance obligations.
3. The third sentence of Clause 9A), requiring immediate steps to have necessary repairs carried out within a reasonable time, did not qualify the classification obligation. It supplied a contractual remedy for breach of the maintenance obligation and could not be elided with the separate classification obligation.
4. In deciding whether the classification obligation was a condition, the court applied ordinary principles of contractual construction. The obligation was clear, absolute, and subject to the fixed temporal requirement that classification be maintained at all times. Breach was objectively ascertainable: the vessel either was or was not in class.
5. The obligation was integral to a bareboat charter. Loss of class could have immediate consequences for insurance, mortgages, flags, ports, regulatory authorities, cargo interests and subcharterers. Damages might also be difficult to assess. Treating the obligation as a condition therefore promoted commercially appropriate certainty without giving trivial breaches disproportionate consequences.
6. The tribunal’s reliance on its understanding of maintenance obligations in time charters was misplaced because the wording and commercial context differed. The tribunal had materially erred in law as to the scope of the classification obligation, which infected its conclusion on contractual classification. Charterers were ordered to pay the costs of and occasioned by the award.

• Arbitral tribunal: By a Partial Final Award dated 12 March 2018, the tribunal dismissed the owners’ application for delivery up, holding that the classification obligation was intermediate and that breach had not been proved.
• High Court (Commercial Court): Phillips J granted leave to appeal on 14 September 2018. Carr J allowed the appeal under section 69 of the Arbitration Act 1996.