Ai Giorgis Oil Trading Ltd v AG Shipping & Energy Pte Ltd - The Marquessa
DMC/SandT/22/14
England
Ai Giorgis Oil Trading Ltd v AG Shipping & Energy Pte Ltd (The “Marquessa”)
English Commercial Court: Henshaw J: [2021] EWHC 2319 (Comm): 17 August 2021
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2021/2319.html
Sean O’Sullivan QC and Iain Munro (instructed by Ince Gordon Dadds LLP) for Ai Giorgis (Owners)
AG Shipping did not appear and was not represented
TIME CHARTER: TERMINATION: CLAIM FOR UNPAID HIRE: EFFECT OF SUSPENSION OF VESSEL’S PERFORMANCE ON RIGHT TO HIRE: CLAIM FOR DAMAGES CONSEQUENT ON VESSEL HAVING TO COMPLETE THE CARRYING VOYAGE FOR CARGO LOADED ON CHARTERERS’ ORDERS BEFORE OWNERS TERMINATED CHARTER ON BASIS OF CHARTERERS’ REPUDIATION OR RENUNCIATION: SUMMARY JUDGMENT ON MERITS
Summary
In finding in Owners’ favour on their summary judgment application, the High Court held that: (a) Owners were entitled to the balance of hire due, including for the periods when the vessel’s performance was suspended for non-payment of hire, up to the time the charter was terminated, and (b) damages at the charter hire rate, because Charterers had repudiated or renounced the charter by repeatedly failing to perform their obligations to pay hire in advance, for the period following termination until the vessel was free of the cargo loaded on board her on Charterers’ orders.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Background
Ai Giorgios, Owners of motor tanker “Marquessa”, time chartered her to AG Shipping, Charterers, on an amended Shelltime 4 form dated 1 June 2020, subject to English law and the jurisdiction of the English High Court.
Charterers paid the initial deposit late and, after delivery of the vessel into Charterers’ service on 15 June 2020, Charterers paid the value of bunkers on delivery and subsequent multiple hire instalments late. This led to Owners suspending the performance of the vessel, after cargo was loaded on 16 October 2020, and to the negotiation of an addendum to the charter, at a stage where USD2.8 million was outstanding.
However, Charterers continued to fail to meet their obligations. On Charterers’ failure to make payment in accordance with the addendum to the charter on 4 November 2020, Owners again suspended the vessel’s performance and, on 9 November 2020, they exercised a lien over the cargo as well. On 15 November 2020, the sixth hire instalment, of USD830,500, fell due but was not paid, leaving USD3.7 million outstanding and overdue.
The vessel was at that stage carrying a cargo on Charterers’ orders for sub-voyage charterers, HK Dada Trading Group Ltd (“HK Dada”). Having exercised the cargo lien and as an act of mitigation, Owners on 23 November 2020 agreed with HK Dada to complete the voyage in exchange for payments into escrow.
On 25 November 2020, Owners accepted Charterers’ breaches as a repudiation or renunciation, electing to treat the charter as having come to an end. HK Dada’s cargo was discharged from the vessel on 3 December 2020. After Owners had served a letter of claim, Charterers on 23 December 2020 alleged that Owners had wrongfully terminated the charter and purported to accept that conduct as a repudiatory breach by Owners.
Thereafter, Owners commenced High Court proceedings. Later – after Charterers’ legal representatives had come off the record and Charterers had ceased to participate in the proceedings – Owners sought summary judgment on two aspects of their claim (for unpaid hire and post termination damages at the hire rate for the completion of the final cargo carrying voyage), leaving over the aspect that was appropriate to be resolved at a full trial (namely, post-termination damages for loss of profit on the unperformed balance of the terminated charter).
Judgment
Basis for Summary Judgment
The judge noted that a summary judgment may be given against a defendant on a particular issue if it has no real prosect of defending the claim and there is no other compelling reason why the issue should be disposed of at a trial. The claimant must also have a realistic claim, being one that carries some degree of conviction, which means the claim must be more than merely arguable.
The giving of a summary judgment must not be a conclusion reached after a mini-trial but it does not mean the court must take at face value and without analysis everything that a claimant says in its statements before the court. However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the summary judgment application, but also the evidence that can reasonably be expected to be available at trial.
Pre-Termination Claim.
The judge noted that Owners claimed, as liquidated sums, the balance of outstanding hire payments, after giving credit for address commissions, Charterers’ payments to date, and the relevant sub-freights received from HK Dada by way of mitigation.
The judge pointed out that Charterers had asserted in correspondence that Owners had failed to allow for off-hire periods. This presumably was a reference to the periods during which Owners had suspended the vessel’s performance.
The judge identified that the charter permitted Owners to suspend performance of the vessel, “… failing punctual and regular payment of hire … and hire shall continue to accrue …”.
The judge did not accept Charterers’ objections – as set out below – to Owners’ reliance on that provision because:
(i) Owners’ right to suspend performance was not a penalty. Advance payment of hire is the commercial quid pro quo for Charterers’ right to use the vessel. Allowing Owners to suspend performance for non-payment of hire, without suspending the accrual of hire (which would undermine the return for which Owners had contracted) simply gave effect to the fundamental bargain. The right to suspend performance was a common provision that had been upheld in previous cases (e.g. The “Greatship Dhriti” – fn.1).
(ii) It was not arguable that Owners’ exercise of the right to suspend performance was an unlawful exercise of a contractual discretion. The nature of the right was such that Owners could reasonably have regard purely to their own commercial interests. In any event, the suspension of performance in the present case was not arguably irrational, arbitrary, or capricious. Owners were entitled to payment for the continued availability of the vessel. Charterers’ defaults were persistent and serious. Further, whilst the judge agreed that they were not bound to do so, Owners had provided reasonable accommodations to Charterers as summarised earlier in this note, but Charterers had continued to fail to comply with their obligations.
(iii) Owners were not obliged to mitigate. Owners’ claim was for liquidated sums due under the charter, not damages for breach. Further, any obligation to mitigate did not require Owners to refrain, while the charter remained on foot, from exercising their right to suspend performance. In any event, Owners did subsequently take reasonable steps to mitigate by means of their arrangement with HK Dada.
In view of the above, the judge accepted Owners’ calculation of the net balance due, after credit for the items referred to, as being USD873,464.97. Charterers’ had no realistic prospect of success in defending Owners’ claim to this sum, and there was no other compelling reason why the issue should be disposed of at a trial. Accordingly, the judge awarded Owners this sum.
Post-Termination Claim
The judge noted that the tests for repudiation and renunciation were helpfully summarised by Popplewell J at first instance (fn.2) and quoted by the Court of Appeal (fn.3) in Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS thus:
“(1) Conduct is repudiatory if it deprives the innocent party of substantially the whole of the benefit he is intended to receive as consideration for performance of his future obligations under the contract…
(2) Conduct is renunciatory if it evinces an intention to commit a repudiatory breach, that is to say if it would lead a reasonable person to the conclusion that the party does not intend to perform his future obligations where the failure to perform such obligations when they fell due would be repudiatory…
(3) Evincing an intention to perform but in a manner which is substantially inconsistent with the contractual terms is evincing an intention not to perform… Whether such conduct is renunciatory depends upon whether the threatened difference in performance is repudiatory…
(4) An intention to perform connotes a willingness to perform, but willingness in this context does not mean a desire to perform despite an inability to do so…” In the present case, the judge agreed with Owners’ submission that by the time they had treated the charter as having come to an end by reason of Charterers’ breaches (25 November 2020), a reasonable owner would have concluded from Charterers’ conduct that they would not, as required by the charter, pay hire punctually in advance. In particular:
(i) Charterers had failed to pay hire from the outset, and this continued over the ensuing months. Following late payment of the deposit, the first hire instalment had been paid late, by which time the second hire instalment was already due and unpaid, leaving an outstanding balance of USD1 million. Charterers then failed or refused to pay the third, fourth and fifth instalments of hire in accordance with the charter. The addendum gave Charterers an opportunity to pay the arrears, but they almost immediately failed to comply with their payment obligations under it, and then failed to pay the sixth hire instalment. By 25 November 2020, USD3.7 million was outstanding, a considerably larger amount than the total of the sums Charterers had paid.
(ii) At most, Charterers expressed a willingness to perform, but repeatedly proved unable or unwilling to do so. By emails of 21 October 2020 Charterers offered part payment of hire from the freight on the current voyage, and proposed ‘mitigation’ payments via freight from future cargoes. This would in substance have converted a contract for payment of hire in advance into one for payment in arrears, based on the hope of future freight receipts. As recorded in Owners’ solicitors’ email of 7 January 2021, Charterers’ solicitors had explained that Charterers had no money, were unable to make any further payment from their own funds, and were instead seeking to pressure third parties into making payments.
(iii) Owners thus were not receiving, and had good reason to believe that they would not receive in the future, the regular, periodic payment of hire in advance for which the parties had bargained.
(iv) As in the Grand China case itself, Charterers’ conduct in the present case deprived Owners of “substantially the whole benefit” of the charter, and they were seeking to hold Owners to an arrangement “radically different” from that which had been agreed. Charterers had made clear that they could or would not perform the charter in accordance with its terms.
In view of the above, the judge considered Charterers were in repudiatory breach of the charter and had renounced it. As such, the judge did not consider it arguable, as alleged in Charterers’ response to Owners’ letter of claim, that Owners were themself in repudiatory breach, for suspending performance and then reaching an agreement with HK Dada.
In assessing the quantum of the damages, up to the time the vessel was free of cargo, the judge noted that no replacement charter at the current market rate was possible, such that there was no scope for entering into a mitigation charter. In correspondence, Charterers had not challenged the principle of using the charter hire rate up to discharge.
As a result, the judge considered Owners were entitled to summary judgment for a sum equivalent to hire at the charter rate, from the time of Charterers’ repudiation, up to the date of the discharge of the cargo, less credit for commission and bunkers remaining on board.
Comment
This judgment is a good example of using English legal proceedings efficiently.
Owners sought summary judgment on two straightforward aspects of their claim, leaving the complicated aspect, on post cargo discharge damages, to be dealt with at a full trial, since expert evidence on the charter market would be needed, when assessing Owners’ loss due to the charter’s premature termination.
The judge helpfully clarified that the suspension of a vessel’s performance in response to failure to pay hire on time need only be exercised with owners’ interests in mind, and that the continued accrual of hire during the suspension did not amount to a penalty. Otherwise, the suspension would cause a loss of owners’ bargain, to receive hire in return for the vessel being made available for the chartered service, if hire were not also received whilst the suspension was in effect in order to enforce that bargain.
The way in which the repudiation or renunciation of the charter was addressed by the judge was also a good model of concision. An assessment of this kind can prove difficult to make correctly in cases that are less clear than the present facts were. The right to claim damages for a loss of future profit can only be achieved if the termination of the charter is on based on a repudiatory or renunciatory breach, as simply withdrawing the vessel due to a failure to pay hire punctually does not itself entitle damages to be claimed for the loss of bargain on the remaining unperformed minimum period of the charter.
Footnote 1: [2012] EWHC 3468 (Comm)
Footnote 2: [2015] EWHC 718 (Comm)
Footnote 3: [2016] EWCA Civ 982
