Claim Nos. 2000 Folio No. 157, 2000 Folio No. 423
BAILII Citation Number: [2000] EWHC 229 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand  London
WC2A 2LL
Date: 8th December 2000

Before:
THE HON MR JUSTICE TOMLINSON

IN THE MATTER OF THE ARBITRATION ACT 1996
AND
IN THE MATTER OF APPLICATIONS IN AN ARBITRATION
- - - - - - - - - - -
BETWEEN

CHINA OFFSHORE OIL (SINGAPORE)
INTERNATIONAL PTE LTD
Applicants (Respondents in the Arbitration)

-and-

GIANT SHIPPING LIMITED
Respondents (Claimants in the Arbitration)
- - - - - - - - - - -

Miss Claire Blanchard, (instructed by Messrs Holman Fenwick and Willan) appeared on behalf of the Applicants

Mr Lionel Persey Q.C., (instructed by Messrs Holmes Hardingham Walser Johnston Winter),
appeared on behalf of the Respondents
- - - - - - - - - - -
JUDGMENT

1.	The Applicants China Offshore Oil (Singapore) International Pte. Ltd, to whom I will refer hereafter as “Charterers”, on 21 November 1996 entered into a charterparty on amended Asbatankvoy form with the Respondents Giant Shipping Ltd, to whom I will refer hereafter as “Owners”.  The charter of the vessel “Posidon” was to carry a cargo of crude oil from one safe port, Guangdong Province in China to one safe port Lawi Lawi in Indonesia.  The charterparty provided for the payment of a lump sum freight in the sum of $307,500.00.

2.	In the event Xijiang was nominated as the loading port.  Xijiang terminal is a Floating Production Storage and Offloading (FPSO) unit, to which tankers moor by way of a tandem mooring.

3.	The Charterers ordered the vessel to load a cargo of at least 660,000 barrels of crude oil.  The vessel arrived at Xijiang on 29 November 1996.  The weather was already bad at the time of her arrival; the wind exceeded the limiting conditions allowed for mooring to the FPSO and the wave heights were close to the operating limit.  The weather was expected to deteriorate.  The vessel was nevertheless permitted to moor.  The loading hose was connected. She then commenced loading cargo. The weather did indeed deteriorate, and by the early hours of 30 November the wind was 35 knots (force 8) and there was a five metre swell.  By mid-morning the wind had increased to 40 knots (force 9) with five to six metres of swell.  Loading operations were stopped and the vessel was disconnected and unmoored by 1142 hours on 30 November. She had loaded 400,000 barrels of cargo at the time she was disconnected.

4.	The vessel remained in the vicinity of the FPSO awaiting instructions to re-moor and load further cargo.  She never received those instructions and in the event was on 2 December ordered by Charterers to proceed to the discharge port, as she did.  At that time the weather conditions remained bad - too bad for a vessel to moor at the FPSO.

5.	Although the Charterers were obliged under the charterparty to pay a lump sum freight to the Owners they initially paid only $181,332.30, contending that they were entitled to pro-rate the freight to reflect the amount of cargo actually loaded.

6.	A dispute arose, Owners contending that they were entitled to the balance of the lump sum freight and the Charterers alleging that they were entitled to damages arising out of the Owners’ failure, in alleged breach of contract, to load a full and complete cargo.  The Charterers said that the vessel was ordered off the FPSO unit on account of various defects, as much as because of the weather conditions, and they contended that the vessel did not re-berth because she was not allowed to return to the mooring on account of defects in the vessel which the terminal regarded as compromising the safety of the loading operation. The dispute was referred to arbitration before London maritime arbitrators, Mr Justin More, Mr George Hardee and Mr Christopher Fyans.

7.	By their First Interim Award the arbitrators awarded to the Owners the balance of the lump sum freight.

8.	It is the Second Interim Award with which I am concerned.  By that Award the arbitrators dismissed the Charterer’s counterclaim for damages.  The arbitrators found and held that there was no breach of contract by the Owners.

9.	The Charterers sought leave to appeal against the arbitrators’ dismissal of their claim for damages.  Leave to appeal pursuant to section 69 of the Arbitration Act 1996 was granted by Longmore J on the paper application.

10.	The relevant contractual provisions are as follows:-

“Part 1:
“Cargo: Charterers option to complete up to full cargo.......”
“Freight rate: USD 307,500.00 lump sum"

Part 11:
Clause 1. WARRANTY-VOYAGE-CARGO
“The vessel, classed as specified in Part 1 hereof, and to be so maintained during the currency of this charter, shall, with all convenient dispatch, proceed as ordered to Loading Port(s) named in accordance with Clause 4 hereof, or so near thereunto as she may safely get (always afloat), and being seaworthy, and having all pipes, pumps and heater coils in good working order, and being in every respect fitted for the voyage, so far as the foregoing conditions can be attained by the exercise of due diligence, perils of the sea and any other cause of whatsoever kind beyond the Owners’ and/or Master’s control excepted, shall load (always afloat) from the factors of the Charterers a full and complete cargo of petroleum and/or its products in bulk, not exceeding what she can reasonably stow and carry.....”

Clause 2. FREIGHT
“Freight shall be at the rate stipulated in Part 1 and shall be computed on intake quantity.....as shown on the inspectors’ Certificate of Inspection.....”

Clause 20(b)(i).  CLAUSE PARAMOUNT
“This bill of lading shall have effect subject to the provisions of the Carriage of Goods by Sea Acts of the United States.....”

Additional Clause 4:
“Owners advise vessel able load about 740,000 bbls Xijiang crude...”.

13.	Relevant findings of fact in addition to those which I have already summarised above were as follows.  The Charterers are a subsidiary of China National Offshore Oil Company.  CNOOC is one of the partners in the joint development project of which Xijiang offshore oil terminal forms a part.  The mooring operation and the transfer of crude oil to a visiting tanker is carried out under the supervision of a Mooring Master who acts as a representative of the terminal.  Operations at the terminal are necessarily also governed by the local weather and sea conditions, and various limits are set out in the terminal procedures relating to the allowable conditions for mooring and the limiting parameters for a vessel remaining at the terminal during inclement weather.  The decision as to precisely when to unmoor is apparently left to the discretion of the Mooring Master, subject to the constraints mentioned.

14.	Three formal written Notes of Protest were issued by the terminal’s Mooring Master following mooring and connection: in relation to an alleged failure to follow VHF instructions before mooring, the fact that the vessel had clean ballast on board when she arrived, and the drafts of the vessel.  The Charterers did not at the arbitration rely upon any of the complaints thus made, but the arbitrators nonetheless found them to be either ill-founded and/or irrelevant.  The mooring operation was as already described undertaken in very difficult conditions.  The vessel was ready to load by 1836 hours on 29 November.  The weather forecast at that time was not promising and conditions were expected to deteriorate further.  The Mooring Master himself expressed the opinion that the vessel might be compelled to leave with a part cargo because of the weather. This advice was passed to the Owners by the Master and by the Owners to the Charterers who instructed the Master that in such circumstances he was to wait for an opportunity to re-berth and complete loading before sailing for the discharge port.  Loading continued through the night and the weather conditions deteriorated.  As already recorded, loading operations were stopped at 1018 hours on 30 November and by 1142 hours on that day the vessel was disconnected and unmoored, some 400,000 barrels of cargo having by that time been loaded.

15.	Paragraphs 61, 62, 63 and 64 of the arbitrators’ reasons I set out in full:-

“61.	Although Charterers’ pleaded case had included the contention that the reason for the vessel being sent off the mooring on the morning of the 30th November, was as much because of the condition of the vessel as due to the poor weather conditions, that was not a contention that seemed to have survived in any recognisable form by the end of the hearing. However, if it did, we would not be persuaded that there was sufficient evidence in the facts as presented to support an argument that one of the reasons for the cessation of loading and the departure of the vessel from the terminal could be said to be defects in the vessel’s equipment. There is nothing in the evidence which suggests anything other than a normal loading period which passed without incident in deteriorating weather conditions, and that the decision to take the vessel off the mooring was made solely on the basis of the weather.

62.	Before the vessel left the mooring, the Master was handed documents signifying the completion of loading.  A Vessel Sailing Notice was issued by the Terminal, giving the Bill of Lading date as the 30th November and commenting that the (loading) operation was discontinued “due prohibitive weather condition”.  The Master thought it rather odd that he had been presented with a Bill of Lading part way through the loading procedure, when he fully expected to wait for better weather to return to the FPSO to complete the cargo.  There was no clear explanation, and we are left with the conclusion that, for one reason or another, the terminal had decided to finish loading the vessel at that time. The inference to be drawn from the Sailing Notice is that it was a decision based on the weather.

63.	The vessel moved away from the terminal and, after completion of the ullage survey which took longer than expected for the reasons just discussed, the Mooring Master and his team were disembarked by helicopter at 1355 hrs. The vessel was then instructed by the Master of the FPSO to proceed to sheltered waters so that the tool box could be safely transferred back to the standby vessel.  This was another indication that the terminal considered the loading to be complete, otherwise the tool box might have been left on board pending the vessel re-berthing.  Nevertheless, the Master followed Charterers’ instructions as received prior to the cessation of loading and took up a position some 10 miles way from the FPSO, where he allowed the vessel to drift awaiting instructions to re-berth.  The weather conditions did not improve o the 30th November, nor on the following days.  The vessel’s Log Book recorded Northerly or North Easterly winds persisting at force 8 - 9 until the time that the vessel was ordered by the Charterers to depart for the discharge port, which she did at about Noon on the 2nd December.  On the 3rd December, the log recorded the weather gradually abating as the vessel sailed Southwards.

Events After Leaving the Terminal

64.	Just prior to his disembarkation on the 30th November, the Mooring Master told the Master that it was unlikely the vessel would berth again.  This was understood by the Master to be a reference to the continuing bad weather conditions and he reported it as such to his Owners, although in rather bland terms.  In the meantime the Master informed the Charterers that he was drifting 10 miles off the terminal waiting for a weather improvement and re-berthing instructions.  He heard nothing directly from the terminal about the prospects of re-berthing.”

16.	The arbitrators also find that the weather conditions remained prohibitive as far as re-berthing was concerned until at least midnight on 2 December.  Berthing was not allowed during the hours of darkness.  The arbitrators could make no finding as when weather conditions abated sufficiently for the terminal to resume operations.

17.	A Mr Doenheim, Marine Superintendent of the terminal, wrote to the Charterers by fax on 30 November confirming that the loading had been stopped due to adverse weather but stating further that the vessel should not be re-berthed because of non-compliance with the terminal regulations.  The Master was advised only of the alleged defects in the vessel cited in the formal Notes of Protest to which I have already made reference above and to which I refer again below.  A Mr Lui of the Charterers in giving evidence at the hearing admitted that the Charterers themselves had not known precisely why the terminal had seen fit to advise that they would not allow the vessel to re-birth.

18.	The arbitrators carefully considered the Charterers’ allegations concerning alleged defects in the vessel.  The first two alleged defects are reflected in the Mooring Master’s formal Notes of Protest which said that the following had been noted:-

1. Forward mooring winch underpowered;
2. Boom without preventors or steam guys.

In addition the arbitrators considered four other alleged defects which surfaced for the first time in Lifting Reports made by the Mooring Master after the vessel had left the terminal. These reports contained the following further complaints:-

“3. Absence of a safety latch on the cargo boom.
4.  The main engine unreliable.
5. The safety bar on the chain stopper not as originally fitted.
6. Leaking and faulty cargo valve hydraulic system.”

19.	After their review of the evidence the arbitrators expressed their essential conclusions as follows:-

“Breach of the Charterparty

89.  It was Charterers’ case that there was a breach of Clause 1 of the Charter in that the vessel did not load a full and complete cargo and was not seaworthy and in every respect fitted for the voyage.

90. So far as unseaworthiness is concerned, and for all the reasons mentioned in the foregoing sections, we are satisfied that on the totality of the evidence put before us, including that of Captain Sencese in his Notes of Protest issued on board the vessel and in his Lifting Report prepared after the vessel had left the mooring, the Charterers were unable to establish a breach of the Owners’ obligations as to seaworthiness, and we are accordingly unable to conclude in their favour.

91.  The failure to load a full and complete cargo arose out of Charterers instructions to the vessel to sail for the discharge port on the 2nd December after the terminal had refused to re-berth the vessel and load up to 660.000 bbls.  There is no suggestion that the vessel would not have been ready to complete loading had she been allowed to re-berth when the weather abated.

92.  There was however a suggestion by the Owners that the terminal did not have on board the FPSO sufficient stocks of oil to allow the completion of loading on the “POSIDON” in any event.  There was no evidence either way on this issue, and we mention it only for completeness since on our finding above, we do not have to make a finding on this issue.

93.  On the facts before us we therefore find that there was no breach of Clause 1 of the Charter. It follows that there was no breach of the relevant sections of the USCOGSA, which was incorporated into the Charter by Clause 20.”

20.	The Charterers allege that evidence was presented to the arbitrators to the effect that the terminal had sufficient stocks to load the vessel and they have a separate application for remission pursuant to section 68 of the Arbitration Act in relation thereto. However this point does not arise and I need not say any more about it.

21.	The Charterers’ argument on appeal was straightforward.  They say firstly that clause 1 of the charterparty imposes upon Owners an absolute obligation to load a full and complete cargo which provision is capable of breach in only one manner, viz, a failure to load a full and complete cargo.  Having concluded that the vessel did not load a full and complete cargo the arbitrators should, say the Charterers, action, although she also later submitted that where freight is payable on a lump sum basis it might arguably not be a breach by charterers to fail to tender cargo for loading.

24.	The proper analysis is, in my judgment, that put forward by Mr Lionel Persey Q.C. for the Owners, in reliance on the discussion contained in Voyage Charters, 1993, by Mr Julian Cooke and others.  Those learned authors point out at page 97 of that work that clause 1 imposes a mutual obligation upon the Owners to receive on board and upon the Charterers to supply a full and complete cargo.  The parties for whom the vessel receives the cargo are deemed to be “factors” or agents of the Charterers. The mutual obligation to load a full and complete cargo requires the Charterers to ship the cargo on board and the Owners to receive it on board.  There is no absolute obligation on the Owners to load - their obligation is contingent upon and cannot be performed without performance by the Charterers of their obligation to ship or to tender for shipment a full and complete cargo.

25.	Here the vessel was permitted to commence loading and loaded about two thirds of the quantity called for.  The decision to terminate loading was made by the terminal or by the Mooring Master on its behalf, i.e. by the agents of the Charterers. It was a decision which, the arbitrators found, was made solely on the basis of the weather - see paragraph 62 of the Reasons. It would seem that the terminal also decided that, for one reason or another, the vessel would not be permitted to re-berth and resume loading.  The arbitrators found that no clear explanation had been given for that decision, although they inferred that that too was a decision based on the weather - see again paragraph 62 of the Reasons.  There is perhaps an inconsistency between the finding in Paragraph 62 of the Reasons and Paragraph 4 of the formal Award which recites:-

“The vessel was refused permission to re-berth to complete her cargo on account of alleged deficiencies in the vessel’s equipment and non compliance with the terminal regulations and was ordered to sail to the discharge port on the 2nd December 1996.”

If it matters, which I do not think it does, it is fairly clear from the narrative in the Reasons that it is in the Reasons that the more accurate account is to be found.  Paragraph 4 of the Award elides findings with later submissions by the Charterers, although it may I suppose be a reference to the evidence of Mr Doenheim.  At all events at a time when the weather was still too bad to permit re-mooring the Charterers ordered the vessel to proceed to the discharge port, an order with which the Master complied at about noon on 2 December - see Reasons paragraph 63. 

26.	In the light of those findings of fact it is not in my judgment open to Miss Blanchard to contend that the reason why the vessel was not permitted to re-moor and resume loading was because of a contemporary perception by the Mooring Master that the vessel was not in a fit state to do so.  On the findings that appears to be an attempted ex post facto rationalisation of the terminal’s decision not to permit re-mooring and further loading. However the argument would not avail Miss Blanchard even if it were open to her.  The arbitrators have found that the vessel was not in fact unseaworthy and/or unfit for the voyage - Reasons paragraph 90. The Charterers must obviously bear the risk of an erroneous perception of unseaworthiness or unfitness formed at the time by them or by those for whom they are responsible, which includes their “factors” by whom the cargo is or should be tendered for shipment.

27.	The short point is therefore that the vessel did not load a full and complete cargo because the Charterers did not provide one and instead ordered the vessel to sail for the discharge port when only two thirds full.  There was no breach of contract by the Owners in failing to load cargo which was not tendered to them for shipment.  Indeed, as Mr Persey correctly observed, had the charterparty in this case provided that freight was to be payable on intaken quantity, then the Owners would have had a cast-iron claim for damages against the Charterers for failing to load a full and complete cargo and thereby preventing the Owners from earning their full freight.

28.	In order to succeed in their claim for damages the Charterers needed first to identify a breach of contract by the Owners.  The Charterers suggested that the reason why further cargo was not tendered for loading was because of the Owners’ breach of contract in presenting an unseaworthy vessel.  The arbitrators rejected that contention, both because it did not accord with reality in that that was not the reason given to the owners at the time and because the vessel was not in any event, as they found, unseaworthy.  If there was no failure by the Owners in performing their part of the bargain contained in clause 1 of the charterparty and if, as the arbitrators also found, the Owners remained ready and willing to complete loading if and when the vessel was permitted to re-moor when the weather abated, there is in my judgment simply no basis on which it can be asserted that the circumstance that the vessel did not load a full and complete cargo renders the Owners in breach of contract.

29.	In my judgment on the basis of their findings of fact the arbitrators were quite correct to conclude that the Owners were not in breach of their obligations under clause 1 of the charterparty.  Indeed their conclusion followed inevitably from their findings of fact and they could not properly have reached any other conclusion.

30.	The Charterers’ appeal therefore fails and is dismissed.