SK Shipping Europe Plc v Capital Vlcc 3 Corp & Anor

A speed and consumption warranty in a time charterparty is ordinarily a contractual promise, not a representation of the vessel’s current or recent performance. However, surrounding words may create a separate representation, particularly where data is said to reflect recent voyages. Inducement is tested by asking what the representee would have done had the representation not been made. A charterer with knowledge of misrepresentation may affirm by ordering substantial performance, even under a general reservation of rights, where its conduct is incompatible with rescission. Cumulative contractual breaches justify termination only if they deprive the charterer of substantially the whole contractual benefit. A guarantee connected with a nomination right may extend to costs incurred enforcing the charterparty.

The Owner claimed damages for the Charterer’s repudiatory breach of a two-year VLCC time charterparty and sought to enforce CMTC’s guarantee. The Charterer alleged fraudulent and negligent misrepresentations about the Vessel’s speed and fuel consumption, breaches of maintenance and performance obligations, and an entitlement to rescind or terminate. CMTC alleged that its guarantee was unenforceable under section 4 of the Statute of Frauds 1677.

The central issues were whether the pre-contractual communications contained actionable representations, whether the Charterer affirmed the Charterparty, whether the Owner’s breaches were repudiatory, whether the guarantee satisfied statutory formalities, and whether it covered costs.

1. Misrepresentation. The offer of a continuing speed and consumption warranty did not, without more, represent the Vessel’s current or recent performance. The statement that the figures were based on the average of the last three voyages did, however, represent that the figures had been checked against and adjusted to be reasonably consistent with recent performance, and that the Owner knew of no reason why they had ceased to be broadly representative. The representation was untrue and made without reasonable grounds, but the evidence did not establish fraud.
2. Inducement and affirmation. The relevant counterfactual was what the Charterer would have done had the representation not been made, rather than what it would have done if told the truth. The Charterer would have entered the Charterparty on the same terms. In any event, by July 2017 it knew the consumption had been misdescribed and had legal advice, but ordered the Vessel on a substantial cargo voyage. That conduct was objectively inconsistent with setting the Charterparty aside ab initio. The reservation of rights did not alter that conclusion.
3. Contractual breach. The condition of class was removed before delivery, which occurred on 16 February 2017. The Owner breached its due-diligence obligations by delaying hull cleaning and inadequately investigating over-consumption. It also failed to overhaul the turbocharger within the prudent interval, although that failure did not cause the breakdown. The breaches, including over-consumption, did not deprive the Charterer of substantially the whole benefit of the two-year charter and were not repudiatory.
4. Remedies and damages. The Owner was entitled to unpaid hire, subject to agreed deductions and the Charterer’s loss caused by hull fouling. There was an available market for a corresponding 12-month charter from October 2017, assessed at $26,000 per day after a reasonable fixing and delivery period.
5. Guarantee. Section 4 of the Statute of Frauds 1677 was satisfied by signed communications from Poten as an intermediate broker, and by the connected written documents. The guarantee extended to liabilities, including costs orders, of the kind CMTC would have incurred had it chartered the Vessel itself.

The Charterer’s and CMTC’s rescission and damages claims failed. The Charterer repudiated the Charterparty. Judgment was entered for the Owner, with debt and damages to be calculated in accordance with the judgment.