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Pan Ocean Co Ltd v Daelim Corporation

Commercial Court supports Tribunal’s willingness to imply a term preventing charterers taking advantage of their own delays. This case involved a failed hold inspection.

 

The Facts and the Arbitration Tribunal

By an amended NYPE1993 the parties entered into a trip time charterparty for the carriage of bulk urea. The vessel berthed in Jubail on 15 February 2017. A hold inspection on the following day failed due to the presence of cargo residue, rust and paint flakes.

Clause 69 provided that on delivery or arrival 1st load port the holds would be clean and free of “salt, rust scale and previous cargo residues”, as well as:

“If Vessel fails to pass any holds inspection the Vessel to be placed off-hire until the Vessel passed the same inspection and any expense/time incurred thereby for Owner’s account.”

Following further cleaning, the Master requested reinspection at 15:30 on 19 February. Earlier the same day the vessel had been ordered off the berth and the reinspection only took place on 4 March when it re-berthed 12 days later.

The charterers had placed the vessel off-hire from 15:30 on 19 February, relying on the above clause. Not unexpectedly, owners disagreed that the vessel was off hire. At the Tribunal, owners submitted that the charterparty was subject to an implied term that charterers had to carry out reinspection of the holds with reasonable diligence and without any undue delay and therefore any loss of time after 15:30 on 19 January was due to charterers’ breach of their implied obligation.

The Tribunal agreed that once the Master called for reinspection, charterers were under an implied obligation to have the vessel reinspected without delay.

 

The Commercial Court

The Court had to decide if the Tribunal was wrong to find that there was an implied term.

For a term to be implied into a contract it must, on an objective analysis, be necessary to give business efficacy to the contract or be so obvious it goes without saying that it should be implied.

The Court held that the Tribunal had applied the correct legal test and an implied term was justified but the way it was expressed was not ideal. The Court found the wording could be seen as ‘shorthand for the content of the term they were implying’. Any implied term had to oblige both parties to cooperate to organise a reinspection without undue delay and that that was what the implied term sought to do. It would be consistent with the need for business necessity and efficacy, and it would comply with Clause 69. It did not oblige an immediate reinspection once the Master advised the holds were clean. It implied that the vessel should be reinspected without undue delay and reasonable diligence should be exercised to achieve this. The vessel was not off-hire as soon as the Master advised the holds were ready for reinspection because that was contrary to the wording of Clause 69 and the Tribunal had erred in so finding.

The Tribunal should have decided by when a reinspection should have taken place, so as to comply with the implied term to arrange reinspection without undue delay. The vessel was back on hire when the reinspection should have taken place and not, as the Tribunal found, when the Master called for reinspection.

The Court made clear that arbitral awards should be read as a whole in a commercial and reasonable manner and that the Court will strive to uphold awards where possible.

The Court ordered the case be remitted back to the Tribunal for them to make their findings in light of the Court judgment.

 

Conclusion

The takeaway from this for charterers is that Tribunals and Courts are willing to read into a charterparty an implied term which prevents charterers taking advantage of their own delays in carrying out their obligations. For instance, if the cargo is not ready to load, charterers cannot use the fact that a reinspection of holds needs to be arranged to their advantage. Tribunals and Courts will not allow an indefinite or even an unreasonable delay.

The MECO Group
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