SK Shipping Europe Limited v Capital VLCC 3 Corp

An offer to contract on terms containing a performance warranty ordinarily makes a contractual promise. Without words or circumstances of representation, it does not represent the subject matter, present performance or future ability to perform.

A misrepresentation induces a contract only if it plays a real and substantial part in the decision to contract. The relevant counterfactual asks what would have happened had the representation not been made, rather than had the truth been disclosed.

Affirmation is assessed objectively from all the circumstances. A reservation of rights often prevents conduct from constituting affirmation, but cannot invariably preserve a right to rescind where the conduct is wholly incompatible with that right.

The Owner negligently misrepresented that speed and fuel-consumption data for the vessel “C CHALLENGER” had been checked against recent voyages and remained broadly representative. The vessel was then chartered for two years under a charterparty containing performance warranties and a compensation mechanism for over-consumption.

Foxton J, in the Commercial Court at [2020] EWHC 3448 (Comm), found that the representations did not induce the Charterer to contract because the same charterparty would have been concluded without them. He also found that the Charterer affirmed the contract by ordering a substantial voyage and that its later purported rescission repudiated the charterparty.

The Charterer and its guarantor appealed on the nature and repetition of the representations, inducement, affirmation, rescission, damages in lieu and the guarantor’s liability. The central issues were whether the offered warranties themselves conveyed representations, whether the proven representations induced the contract, and whether the Charterer had affirmed it.

1. Appeal dismissed unanimously. Males LJ gave the judgment, with which Phillips LJ and Carr LJ agreed. The Owner’s proven negligent representations did not induce the Charterer to enter the charterparty. The Charterer had also affirmed the contract, so its purported rescission was ineffective and constituted a repudiation.

2. An offer of a contractual warranty ordinarily contains words of obligation rather than representation. Here the performance warranties formed part of a detailed contractual mechanism which contemplated over-consumption and compensation. They did not represent the vessel’s actual or expected performance. The earlier representations about recent voyages were deliberately omitted from the negotiations and were not repeated or embedded in the charterparty: paras [43]–[60].

3. Inducement required the representations to play a real and substantial part in the Charterer’s decision. The correct counterfactual was what would have occurred if the Owner had offered the same warranties without making representations about recent performance. The judge was entitled to find that the same charterparty would have been concluded. The representations were therefore not causative despite their materiality: paras [61]–[71].

4. Affirmation is an objective waiver by election. A reservation of rights will often prevent otherwise equivocal conduct from constituting affirmation, but this is not an invariable rule. All circumstances must be considered, including the reservation’s terms and the nature and consequences of the demanded performance. The order for a substantial voyage to the Far East was, in its context, incompatible with retaining a right to rescind the charterparty ab initio: paras [73]–[79]. Capital Maritime’s guarantee was affirmed with the charterparty because the parties could not commercially have understood the charter to continue without the promised guarantee: para [80].

5. The court did not determine whether Foxton J’s approach under section 2(2) of the Misrepresentation Act 1967 was wrong in principle. Males LJ observed that rescission is the normal remedy where an operative non-fraudulent misrepresentation has induced the contract and no bar exists. Serious practical and conceptual difficulties may arise if a court retrospectively declares subsisting a contract already rescinded or otherwise ended. Those issues were left for a case in which they affected the outcome: paras [81]–[91].

1. Court of Appeal (Civil Division): The Charterer’s and guarantor’s appeal was dismissed unanimously: [2022] EWCA Civ 231.

2. High Court, Commercial Court: Foxton J held that the negligent misrepresentations did not induce the Charterer to contract and that the Charterer affirmed the charterparty. Its purported rescission was therefore a repudiation entitling the Owner to damages. The judge would alternatively have declared the contract subsisting and awarded damages under section 2(2) of the Misrepresentation Act 1967: [2020] EWHC 3448 (Comm).