Regal Seas Maritime SA v Oldendorff Carriers GmbH & Co Kg (New Hydra)

A contractual hire formula referring to published market rates must be construed objectively, considering its language, commercial context and the need for the charterparty to operate throughout its agreed duration. Where the specified benchmark changes and the original formula no longer works, the court may imply a term providing for a reasonable adjustment if the contractual intention is clear and the adjustment can be objectively assessed. The court must not rewrite the bargain by treating a derived rate as the published rate specified in the contract. Commercial common sense cannot justify retrospective rewriting, but it may support an implication necessary to preserve commercial and practical coherence.

The claimant shipowner appealed under section 69 of the Arbitration Act 1996 from an arbitration award concerning the construction of a time-charter hire clause. The clause calculated hire by reference to the average of four Baltic Capesize time-charter routes, plus 4% for size adjustment.

After the Baltic Exchange changed its benchmark vessel from 172,000 to 180,000 tonnes, the parties continued calculating hire by reference to a derived 172 4TC figure. The tribunal accepted the charterers’ construction and dismissed the owner’s claim for additional hire. The central issue was whether the clause fixed the benchmark at 172,000 tonnes or followed the Baltic’s current published benchmark, with an appropriate size adjustment.

1. The appeal was allowed. The arbitration Award was set aside and remitted to the Tribunal to determine the charterers’ variation and estoppel defences.
2. The hire clause referred to the average of the four routes published by the Baltic Exchange. It did not expressly identify the size of the benchmark vessel. Objectively construed in its commercial context, the reference could apply to the benchmark vessel used by the Baltic from time to time.
3. The agreed 4% adjustment was appropriate for the 172,000-tonnes benchmark vessel existing when the charterparty was made. It did not provide for the consequences of a later change to the benchmark vessel. The charterers’ construction required impermissible rewriting because the derived 172 4TC figure was not the average of four routes published for a 172,000-tonnes vessel, and after December 2017 no such 172 4TC figure was published.
4. Following the principles stated in Marks and Spencer PLC v BNP Paribas [2016] AC 742, the question of implication arose only after construing the clause. A term could be implied that the size adjustment should be reasonably revised after a change to the benchmark vessel. That term was necessary to give the charterparty business efficacy and commercial or practical coherence.
5. The objections based on uncertainty and the possibility of withdrawal for non-payment did not prevent implication. The Tribunal could assess the adjustment by reference to evidence of the vessels’ relative earning capacities. The authorities concerning agreements to agree, including BJ Aviation v Pool Aviation [2002] EWCA 163 and Morris v Swanton Care [2018] EWCA Civ 2763, concerned materially different contractual provisions.
6. The later Addendum No.5 could not be used to construe the original charterparty because it post-dated it. It might be relevant to variation or estoppel, which the Tribunal had not decided. If those defences failed, the Tribunal would determine what reasonable size adjustment, if any, was required.

• High Court (Commercial Court): on an appeal under section 69 of the Arbitration Act 1996, the court allowed the appeal, set aside the Award and remitted the matter to the Tribunal.
• Arbitration: the Tribunal’s Award dated 20 July 2020 dismissed the owner’s claim for additional hire and accepted the charterers’ construction of the hire clause.