Space Shipping v ST Shipping and Transport
DMC/SandT/22/03
England
Space Shipping Ltd v ST Shipping and Transport PTE Ltd [2021] EWHC 2288 (Comm)
High Court of Justice Queen’s Bench Division Commercial Court: Sir Nigel Teare : 13 August 2021
Judgment available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2021/2288.html
Steven Berry QC and Adam Board, instructed by Lax & Co LLP, for the Claimant ("Space Shipping")
Sean O’Sullivan QC and James Hatt, instructed by Preston Turnbull LLP, for the Defendant ("ST Shipping")
CHALLENGE TO ARBITRATION AWARD FOR ERROR OF LAW UNDER S.69 ARBITRATION ACT 1996: WHETHER TRIBUNAL ERRED IN LAW IN DEDUCTING SAVED DRYDOCKING COSTS FROM ITS AWARD OF AN INDEMNITY TO DISPONENT OWNERS AGAINST SUB-CHARTERERS FOR THE CONSEQUENCES SUFFERED BY THE DISPONENT OWNERS UNDER THE HEAD CHARTERPARTY WHICH HAD BEEN CAUSED BY THE CHARTERERS’ BREACH OFTHE SUB-CHARTERPARTY
Summary
In this case, the High Court dismissed Claimant’s application to set aside the deduction of dry-docking costs made in a Final Award between the Claimant and the Respondent, concluding that there was no error of law in deducting such costs from the award of bareboat hire and expenses incurred by the Claimant to the Head Owners and caused by the detention of the Vessel due to the Defendant’s breach of the sub time-charterparty. The detention of the Vessel rendered it impossible to drydock the Vessel before her redelivery under the head charterparty, and pointless to drydock her after the Head Owners had declared her a constructive total loss. When assessing the overall consequences of the detention on an indemnity basis as between the Claimant and the Defendant, the drydocking costs were to be regarded as costs saved and therefore deductible from the Claimant’s claim.
Case note contributed by Julia Zizhen Zhu, Solicitor of England & Wales, Solicitor of Hong Kong, International Contributor to DMC’s Case Notes
Background
On 23 October 2010 Space Shipping chartered-in the vessel CV STEATLH (“Vessel”) from Psara Energy Limited (“Head Owners”) on a bareboat charter for approximately 5 years with Space Shipping having an option to extend the bareboat charter for one or two years.
On 10 April 2014 Space Shipping fixed the Vessel on a time charter to ST Shipping for a period of 8 months. ST Shipping directed the Vessel to Venezuela to load a cargo which proved not be authorised for export. On 19 September 2014 the Vessel was detained by order of the Venezuelan court, and was not released until 3 October 2017, that is, a detention of more than three years.
Thereafter, Space Shipping arranged for the Vessel to be towed to Port of Spain, Trinidad, and redelivered the Vessel to Head Owners on 24 March 2018 without having been drydocked. On 30 August 2018 the Vessel was sold for scrap.
Space Shipping commenced arbitral proceedings against ST Shipping and the Tribunal constituted has since September 2015 made seven Partial Final Awards as events developed in Venezuela. A Final Award was made on 19 October 2020. The total sum awarded in favour of Space Shipping amounted to US$24,468,621.91 including hire, sums claimed under the indemnity clause 13 of the sub-charterparty -see later - and as damages for breach of clause 28, pursuant to which the Vessel was not to be exposed to capture or seizure.
Space Shipping appealed from one aspect of the Final Award, namely, the Tribunal’s deduction from the sums claimed by Space Shipping of the costs of drydocking in the amount of USD1.4 million. That deduction was made because Space Shipping had been saved the costs of the drydocking as a result of the detention of the Vessel.
Space Shipping had already challenged such deduction in two of the previous Partial Awards, but without success. When the Tribunal made the Final Award the deduction was again challenged but the Tribunal confirmed the deduction. This appeal was the latest, and perhaps final, attempt by Space Shipping to remove the deduction and so recover a further US$1.4million.
Clause 41(c)(ii) of the sub time-charterparty provided that either party may “appeal to the High Court on any question of law arising out of an award”. Thus, there was no need for Space Shipping to seek leave to appeal under s.69(2)(b) of the Arbitration Act 1996.
Judgment
The Court dealt with the four reasons given by Space Shipping for suggesting that the Award was wrong in law in the following logical order:-
(i) Ought the Tribunal to have held that ST Shipping had failed to prove a saving?
Space Shipping submitted that non-payment of the drydocking costs did not generate a saving because the failure to drydock caused an immediate and at least equal legal liability of Space Shipping to the Head Owners for breach of the bareboat charter. It was said that the Tribunal had ignored such liability and that this was an error of law.
The Tribunal found that the Head Owners were not claiming from Space Shipping the cost of a drydocking because there never was one. The claim which the Head Owners were bringing related to the condition of the Vessel on redelivery and that claim was put on the basis of a constructive total loss, that is, for the alleged market value less the scrap value. However, Space Shipping did not seek to pass on to ST Shipping such liability, if any, which they had to the Head Owners. Thus, there had been no finding in the award that Space Shipping were liable to the Head Owners in an amount at least equal to the cost of drydocking.
The Court found no error of law in the Tribunal’s approach or in its finding that there was a saving to Space Shipping.
(ii) If there was a saving, ought the Tribunal to have held that there was no sufficient causal nexus with the ST Shipping’s breach of the sub-charterparty?
Space Shipping’s argument was that the saving had not been caused by the detention of the Vessel but by Space Shipping’s independent decision to be in breach of the bareboat charter by not drydocking and by redelivering without drydocking.
That argument was rejected by the Tribunal. The Tribunal found that, as a result of the detention, there was no possibility of drydocking the Vessel on any sensible basis before she was redelivered. There was a physical impossibility as long as she was detained, and by the time she was at Port of Spain the Head Owners had already declared her a constructive total loss. The failure to drydock was an inevitable result of and was caused by the detention of the Vessel.
The Court accepted that the tribunal’s findings were findings of fact which did not give rise to any point of law, and on matters of fact the Tribunal’s decision was final.
The Court also distinguished the New Flamenco [2017] UKSC 43 in that in the present case there was, as found by the Tribunal, a clear causal connection between the detention of the Vessel and the saving made by Space Shipping by not drydocking her.
(iii) If there was a saving which was caused by the breach ought the arbitrator to have held that ST Shipping were estopped by res judicata from alleging such a saving?
Space Shipping submitted that the drydocking costs would have been incurred by about 27 June 2015, the drydocking costs were not taken into account in the calculation of lost trading profits up to 20 July 2015 in the Partial Final Award 1 (“PFA 1”), and thus ST Shipping were estopped on the basis of res judicata from asserting those costs after PFA1 had been published.
Space Shipping’s submission only had force if the saving of the drydocking costs could only have been taken into account when assessing the claim for lost trading profits up to 20 July 2015. But the Tribunal did not consider that it would have assessed the lost profits at a lower daily rate had the saving been considered at PFA1. Rather, the Tribunal considered that it would have given credit against the claim “on a provisional basis” because at the time of PFA1 it was not certain that there would ultimately be a saving. That being so, the argument of estoppel fell away.
The Court did not find any error of law involved in assessing the trading profits lost before 20 July 2015 without taking into account the periodic costs of drydocking. Nor did the Tribunal err in law in failing to hold that ST Shipping were estopped from seeking the deduction after PFA1.
(iv) If the Charterers were not so estopped, ought the arbitrator to have held that such a saving could not be deducted from the contractual claim for an indemnity.
Clause 13 of the sub time-charter party provided that ST Shipping were to “indemnify the Owners against all consequences or liabilities that may arise from any irregularities in papers supplied by Charterers or their agents.” Space Shipping claimed under this clause as well as claiming for damages for breach under clause 28 that no voyage shall be undertaken “that would expose the vessel to capture or seizure by rulers or governments”. Space Shipping submitted that a credit or deduction in respect of the saving of drydocking costs was only permissible from the claim in damages. There was no express or implied right to deduct such a saving from the claim for an indemnity.
The Tribunal considered that when assessing the “consequences” of detention of the Vessel under clause 13, it was appropriate to view the consequences generally and in particular to include those which gave a saving.
The Court held that that approach was consistent with the notion of an indemnity.
Having considered the above four reasons raised by Space Shipping, the Court found that none of the alleged errors of law had been established. The Appeal was therefore dismissed.
Comment
1. This was an appeal to challenge the Final Award following seven Partial Final Awards, all concerning same set of facts, that is, detention of a vessel in Venezuela for approximately 3 years due to the charterers’ breach of the sub time-charterparty. The disponent owners contested the Tribunal’s deduction from the sum awarded to them of a saving of drydocking costs which were never incurred but would have been incurred under the Head charterparty, had there not been the detention.
2. Among other reasonings in the Judgment, the Court carefully discussed the Supreme Court decision in the New Flamenco (2017). In the New Flamenco case, the owners elected to sell the vessel following the wrongful early redelivery of the vessel, but the early redelivery did not cause the sale. There was no causal connection between the early redelivery of the vessel and the sale of the vessel. That being so, the benefit obtained by selling was a result of owners’ independent decision, and therefore not be credited against the owners’ loss.
3. Different from the facts in the New Flamenco case, the arbitral tribunal in the instant case found a clear causal connection between the detention of the vessel and the saving made by the disponent owners by not drydocking her. There was no possibility to drydock the vessel whilst she was detained, and afterwards it became pointless to drydock her once she was declared a constructive total loss. The ratio of the New Flamenco case could not, therefore, apply to the instant case as the facts were materially different. Thus, the New Flamenco case had to be distinguished.
4. A good summary of the New Flamenco case and its application is contained in the paragraphs 48 to 50 of the Judgment of the instant case.
