Pan Ocean Co Ltd v Daelim Corporation

A term will be implied into a charterparty only where it is necessary to give the contract business efficacy or is so obvious that it goes without saying. Reasonableness alone is insufficient. An arbitral award must be read as a whole and, where reasonably possible, construed commercially so as to uphold it. A term requiring reasonable diligence to arrange a reinspection may require cooperation by both parties and does not necessarily impose an immediate or strict obligation on one party. Where an express off-hire clause provides that hire resumes when the vessel passes inspection, the vessel does not return on hire merely because the master requests a reinspection. The appropriate time for resumption depends on when the reinspection should have occurred with reasonable diligence. An award containing an intentional error of law may be remitted for reconsideration rather than corrected under statutory powers concerned with accidental errors or clarification.

Pan Ocean Co Ltd, the charterers, appealed under section 69 of the Arbitration Act 1996 against an award concerning the vessel DL LILAC. The vessel had failed a cargo-hold inspection and was placed off hire under clause 69 of the time charter. After the master reported that cleaning was complete and requested a reinspection, the vessel remained away from the berth for about 12 days before the reinspection occurred.

The arbitrators implied a term requiring the charterers to have the vessel reinspected without delay and awarded the owners loss of hire and bunker costs. Permission to appeal was granted on whether such an implied term existed and whether the charterers were obliged to arrange reinspection without delay. The central issues were the proper test for implication, the content of any obligation, the effect of the off-hire clause, and the appropriate remedy.

1. Threshold issue. The tribunal’s decision was intentional and considered. It was not an accidental mistake or omission capable of correction or clarification under section 57(3) of the Arbitration Act 1996 or article 27 of the LMAA Terms 2017. Section 70(2) therefore did not preclude the appeal.
2. Implication of terms. The correct test was whether the term was necessary to give business efficacy to the charterparty or so obvious that it went without saying. Although the award referred to what was reasonable, read as a whole it adopted the correct necessity and obviousness analysis.
3. Content of the term. The implied obligation required both parties to take reasonable steps to organise a reinspection without undue delay. It was not a strict unilateral obligation imposed on the charterers alone. The tribunal’s reference to the charterers alone was shorthand reflecting the facts and the parties’ submissions.
4. Effect of the obligation. The term did not require immediate reinspection or make the charterers immediately in breach when the master requested one. Nor did the vessel return on hire at that point. Clause 69 provided that the vessel remained off hire until it passed the inspection. The tribunal had erred in law by treating the vessel as back on hire immediately upon notification that the holds were ready.
5. Remission. Under section 69(7) of the Arbitration Act 1996, remission was appropriate. The tribunal was to determine what reasonable steps should have been taken, whether either party was in breach, when the reinspection could have occurred without breach, the resulting financial consequences, and the arbitration costs.

• Arbitration tribunal: Award dated 27 January 2022, implying an obligation on the charterers to arrange reinspection without delay and awarding the owners loss of hire and bunker costs.
• High Court (Commercial Court): Permission to appeal was granted by Andrew Baker J under section 69 of the Arbitration Act 1996. The award was remitted to the tribunal for reconsideration.