UK: Court Construes Meaning Of "Cargo Tanks" In Charterparty

VTC v. PVS [2012] EWHC 110 (Comm)

The Commercial Court has recently considered an appeal from an arbitration award on the issue of whether a reference to "all cargo tanks" in a time charterparty extended to slop tanks, with the result that a crack in the port side slop tank meant that the owners were in breach of their contractual warranty that the vessel would arrive at each load port with "all cargo tanks, pumps and lines" suitable to load the intended cargo to the satisfaction of the charterers' representative and/or independent surveyor. Mr Justice Hamblen agreed with the arbitrators that, for the purposes of this charterparty, "all cargo tanks" did not cover "slop tanks" and so there had been no breach of the warranty in question.

The background facts

The parties entered into a time charter on an amended Shelltime 4 form for a period of about 10 years. Among other things, the time charter contained a general maintenance obligation (clause 3). In addition, clause 64 provided as follows:

Approximately five years into the time charter, the vessel was sub-chartered to load a cargo of gasoline in Rotterdam for carriage to ports in Mexico, the USA and the Caribbean. During her voyage to Rotterdam, oil was found on the surface of the ballast water in one of the ballast tanks owing to a crack in the slop tank. The owners advised the charterers that permanent repairs were required because of the crack but that they could not be done before the cancelling date under the sub-charter. As a result, the sub-charterers cancelled the sub-charter. The vessel sailed to Rotterdam and was repaired there. As Rotterdam was no longer a load port, however, the tanks were not inspected by charterers' representative or an independent surveyor pursuant to clause 64. The charterers subsequently made deductions from hire on the basis of an alleged breach of clause 64.

The arbitration tribunal found in favour of the owners that there had been no such breach. According to the tribunal, clause 64 had to be seen in the context of the charter as a whole, including that it was for 10 years' trading. It contained an obligation that was not absolute but that "bit" at each load port and was dependent only on satisfying charterers' representative or the independent surveyor as to the cleanliness in respect of cargo tanks, pumps and lines. "Cargo tanks" could not be read as including slop tanks or ballast tanks because, as a matter of common sense, an inspector going to inspect the tanks into which cargo is going to be loaded, essentially for cleanliness, is not going to go around checking all the other spaces on the ship.

In the tribunal's view, maintenance of the other parts of the ship, such as slop and ballast tanks, was covered by clause 3. There was no suggestion, however, that the owners were in breach of clause 3. The charterers had not, therefore, been entitled to make deductions from hire.

The charterers appealed on the sole ground that the arbitrators should have held that "all cargo tanks" in clause 64 encompassed the vessel's slop tanks and that the owners were therefore in breach of the charter by reason of the crack in the port side slop tank.

The Commercial Court decision

Among other things, the charterers argued that slop tanks can be used to carry oil cargoes as if they were one of the main cargo tanks. The judge noted that the tribunal had not found that cargo could never be loaded in the slop tanks. This was not a case, however, where cargo was going to be loaded into the slop tanks. The charterers' representative or independent surveyor was not going to inspect the slop tanks. So, in that context, the slop tanks were not cargo tanks for the purpose of clause 64.

There was, in the judge's view, an important distinction between the "cargo tanks" and other parts of the ship such as slop tanks. Clause 64 was generally to be read as referring to the cargo tanks only.

1. The owners were subject to a general maintenance obligation pursuant to clause 3. This was a continuing obligation which applied throughout the duration of the charter but it imposed a due diligence, not an absolute, obligation on the owners.
2. Clause 64 imposed an additional obligation separate to the general maintenance obligation but was not a continuing obligation. It only applied at each load port.
3. The clause 64 obligation on the owners was to ensure that when the vessel arrived at each load port, her cargo tanks, pumps and lines were suitable to load the intended cargo to the satisfaction of the charterers' representative or surveyor. The obligation was therefore to satisfy the charterers' representative or independent surveyor, nothing more. So even if the cargo tanks were not fit to load the cargo, there would be no breach if they had been passed by the charterers' representative/surveyor.

In the present case, Rotterdam was no longer a load port and so the cargo tanks were never inspected pursuant to clause 64. The owners could not, therefore, be in breach of clause 64.

Comment

The judge found that the "natural reading" of clause 64 was that it intended to distinguish cargo tanks from other ship's tanks. His view reflected that of the tribunal, which had stated in the Reasons for its award that any protection the charterers required as to other parts of the ship, such as slop and ballast tanks, was provided for in clause 3. Had the charterers wished to extend the scope of clause 64 to tanks other than cargo tanks, "it would have been the easiest thing to delete the word "cargo"".

The case highlights that the court will construe a charterparty as a whole and read related clauses together to establish the scheme of rights and liabilities under the contract. It is important, therefore, that the parties ensure that the charterparty accurately and comprehensively reflects the allocation of risk that they want to agree.

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