Eitzen Bulk AS v. TTMI SARL (m/v Bonnie Smithwick)  EWHC 202 (Comm)
In common with many disputes that have gone to court or arbitration in the past three years, this one took place against the background of the financial crisis in late 2008 when the market for both charter rates and bunker prices dropped considerably. The issue here related to the price to be paid for bunkers on redelivery under clause 15 of a SHELLTIME 4 2003 standard form.
SHELLTIME 4 clause 15
The 2003 version of SHELLTIME 4 provides at clause 15:
"Charterers shall accept and pay for all bunkers on board at the time of delivery, and Owners shall on redelivery...accept and pay for all bunkers remaining on board at the price actually paid, on a "first-in-first-out" basis. Such prices are to be supported by paid invoices."
The question for the court was whether the words "price actually paid" meant the price paid by the party seeking reimbursement under the clause or the price paid when the bunkers were stemmed. The judge (Mr Justice Eder) upheld the arbitrators' finding that they meant the price paid when the bunkers were stemmed.
The background facts
In 2007, TTMI let the vessel to Eitzen on amended SHELLTIME 4 terms (the "head-charter"). Eitzen then sub-let the vessel on a number of voyage and trip sub-charters. The penultimate of those was a trip time charter to Cargill (the "Cargill charter"), providing for Cargill to pay on delivery and Eitzen (as disponent owner) to pay on redelivery fixed prices for bunkers at rates of US$ 625/mt IFO and US$ 1,100 MDO.
When charter rates crashed in late 2008, Eitzen let the vessel back to TTMI (the "sub-charter") at a rate of hire much lower than that payable under the head-charter, but otherwise on back-to-back terms for the remaining period of the head-charter. The vessel was delivered to TTMI at the same time as it was redelivered under the Cargill charter. On delivery, TTMI paid Eitzen the same fixed price for bunkers that Eitzen had paid to Cargill. This was not disputed.
TTMI stemmed bunkers twice while the vessel was on sub-charter to them. The rates they paid to bunker suppliers were US$ 283 IFO in November 2008 and US$ 270 IFO in January 2009. Redelivery then took place simultaneously under the sub-charter (from TTMI to Eitzen) and the head charter (from Eitzen to TTMI). The price to be paid for bunkers (by Eitzen) on redelivery under the sub-charter was the fixed price expressed in the Cargill charter. This too was undisputed.
Eitzen claimed that TTMI should pay for bunkers on redelivery under the head-charter at the same rate Eitzen had paid to Cargill. Eitzen claimed this amount in accordance with clause 15 on the basis that it was the "price actually paid" by them for the bunkers remaining on board at the end of the head charter.
Bunker prices had also dropped in late 2008, and the prices TTMI had paid for bunkers while the vessel was on sub-charter to them were therefore much lower than the fixed rates to be paid under the Cargill charter. TTMI therefore argued that the "price actually paid" under clause 15 of SHELLTIME 4 meant the price they had paid to bunker suppliers.
The arbitrators agreed with TTMI. Eitzen appealed.
The Commercial Court decision
The judge dismissed Eitzen's argument that TTMI's interpretation was unworkable because clause 15 required "prices to be supported by paid invoices" and a charterer would not usually be in possession of (nor would they have a right to obtain) invoices issued by a bunker supplier to a third party. Rather, the judge said that while a charterer may have difficulty obtaining copies of the relevant invoices, it would not be impossible for them to do so.
Eitzen also argued (in the wake of the Supreme Court decision in Rainy Sky v. Kookmin Bank, an Ince case reported on in our January 2012 E-Brief) that the words "price actually paid" had more than one possible meaning and should be given the interpretation that is most consistent with business common sense. In Eitzen's view, the purpose of clause 15 was to make sure that the transferor of bunkers on delivery or redelivery was reimbursed the price they actually paid for them. Eitzen claimed it would not make good business sense for a party seeking reimbursement to be exposed to the risk of a bad bargain having been struck with bunker suppliers when they had no control over that bargain.
Again, the judge was not persuaded. He thought it equally, if not more, inconsistent with business common sense for an owner to be taken to have agreed to pay a price for bunkers over which he has no control and which does not necessarily bear any relation to market prices (if prices fixed by the terms of a sub-charter) or the amount actually paid to the bunker supplier.
TTMI, in support of their case, relied on the use of the words "first-in-first-out" as the basis on which the "price actually paid" should be assessed under clause 15. The judge was persuaded by this line of reasoning, in particular because such wording seemed to suggest that the price was intended to be linked to the physical movement of the fuel. In other words the stemming of bunkers "in" and the consumption of bunkers "out".
The judge therefore agreed with TTMI that the "price actually paid" should be the price paid to bunker suppliers for the fuel being taken in at any particular time, whether this was done by a charterer or a sub-charterer. Accordingly the decision of the arbitrators was upheld, and TTMI succeeded in arguing that the price they should pay to Eitzen on redelivery under the head charter was the price they paid to bunker suppliers when those bunkers were stemmed.
The judge acknowledged that clause 15 of the subject charter is potentially open to more than one interpretation. He also agreed with the arbitrators that the SHELLTIME 4 standard form is not well suited to being the source document where there is a chain of charters, and that it is more appropriate for use in a long term charter between two parties who can be expected to have copies of all bunker invoices available to them and where charterers intend to stem bunkers themselves. This case highlights the need to consider having specially tailored provisions in a string of time charters to deal with bunker prices on delivery and redelivery, rather than simply adopting the standard form charterparty language.
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