Ceto Shipping Corporation v Savoury Shipping Inc

Where a contract makes transfer of an asset conditional on payment of all sums due, “due” means due. It does not mean admitted, undisputed, finally determined, or disputed in bad faith. Commercial uncertainty while the parties resolve a genuine dispute does not justify rewriting the bargain. The court should construe the condition in its contractual and commercial context, including the parties’ evident intention that title should pass only after a clean slate of relevant indebtedness. Where that issue disposes of the claim, the court should ordinarily leave alternative construction questions undecided.

The claimant was demise charterer of a tanker under a Barecon 2001 charter incorporating a sale agreement. An addendum provided that, on expiry, title would transfer only if the claimant had paid all hire and other charter sums and all management fees and other sums due to the defendant’s associated manager, Delfi.

The claimant sought a declaration that title had transferred despite disputed sums allegedly owed to Delfi. The central issue was whether “due” meant legally due in fact, or only admitted, finally determined, or disputed in bad faith. The court also heard alternative arguments concerning third-party debts and whether the parties’ rights crystallised at expiry.

1. The claim was dismissed. On the proper construction of clause 39.1, title did not pass, and the defendant was not obliged to transfer title, if the claimant owed management fees or any other sum to Delfi under the management agreement.
2. “Due” meant due in fact. It did not mean merely admitted, determined by arbitration or judgment, or disputed in bad faith. The wording required the claimant to have discharged its actual payment obligations before acquiring title.
3. The contractual context reinforced that construction. The amended clause formed part of an addendum resolving an earlier payment dispute and was intended to provide a clean slate before title passed. The defendant also had a commercial interest in retaining ownership while its associated manager remained unpaid.
4. The possibility that Delfi might have remedies against the vessel did not support the claimant’s construction. The suggested Admiralty remedies proved too much, because they would exist whether the debt was admitted or disputed, and too little, because Delfi’s technical and crew management agreement was not an agreement relating to the use or hire of the vessel.
5. The court further held that Delfi’s management fees were not ship’s disbursements for the purposes of section 20(2)(p) of the Senior Courts Act 1981. The authorities concerning commercial managers did not assist on the materially different facts.
6. It was unnecessary to decide whether “other sums due under this Charter” included third-party debts which the claimant had promised to pay, or whether the parties’ rights crystallised once and for all at charter expiry. Those questions were left open.
7. A final order was envisaged recording the construction determined and dismissing the claim with costs.

First instance decision. No appellate history was stated in the judgment.