Case No: 2014 FOLIO 106
Neutral Citation Number: [2014] EWHC 4176 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL

Date: 12/12/2014

Before :

THE HONOURABLE MR. JUSTICE TEARE
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Between :

	HBC HAMBURG BULK CARRIERS GMBH & CO KG	Claimant Owners	
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	HUYTON INC	Respondent
Charterers	

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Mr. Michael Nolan (instructed by Loudouns) for the Claimant/Owners
Mr. Yash Kulkarni (instructed by Jackson Parton) for the Respondent/Charterers

Hearing date: 5 December 2014
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Judgment
Mr. Justice Teare : 
1.	This is an appeal from an arbitration award pursuant to section 69 of the Arbitration Act 1996. Permission to appeal was granted by Flaux J. The appeal raises a short question of construction of an addendum to a charterparty and concerns liability for the sum of USS$186,905.51, being the costs of transiting the Suez Canal. 
2.	On 23 October 2009 the Claimants, as disponent owners, chartered the vessel GLORY SANYE to the Respondents on the SYNACOMEX 2000 form for a voyage from Constanza to Djibouti with a cargo of wheat. The Claimants themselves had time chartered the vessel from the registered owners on the NYPE 1946 form for a time charter trip “intention via Constanza to Djibouti or Port Sudan”.
3.	The vessel loaded a cargo of wheat at Constanza and arrived at Djibouti on 20 November 2009. However, the vessel was unable to discharge because there were no receivers for the cargo. The vessel remained off Djibouti for some three months. An agreement, addendum no.1, was reached between the disponent owners and charterers that the discharge port would be changed to Ain Sukhna, an Egyptian port south of the Suez Canal. The terms of addendum no.1 were as follows (the numbering has been added by me for ease of reference):
Addendum no.1 to C/P dated 23 October 2009 (including for avoidance of doubt the arbitration law and jurisdiction clause) MV “GLORY SANYE” :
(i) Without prejudice to all rights as previously reserved
(ii) Dischargeport : Ain Sukhna (instead of Djibouti)
(iii) The vessel shall be on and remain on demurrage as per previous SOA submitted subject to minor adjustments-if any-according to the SoF as issued and accepted between Master/agents/HBC until time and date of redelivery after completion of discharge at Ain Sukhna (including sea passage from Djibouti to Ain Sukhna) and demurrage to become due day by day and becomes due for payment every 5 days commencing from the date of departure Djibouti until completion of discharge. The first payment of demurrage to be paid upon arrival Ain Sukhna and tendering N.O.R. and thereafter every 5 days.
Demurrage rate: 1st 25 days from time and date of departure Djibouti at USD 23500.- and remaining balance until completion of discharge at USD 32500.-.
(iv) Hatch/sealing/ full draft inspections to be reimbursed by charterers against owners P&I club correspondents invoices, prior booking/arrangement of same owners to present quote to charterers. If charterers can provide a more competitive quote, owners to comply with same.
(v) Owners and Headowners to be held harmless and indemnified against all losses, expenses, damages, risk whatsoever and howsoever arising including but not limited to those which may arise from any 3rd party including but not limited to Egyptian authority’s rejection refusal or inability to accept delivery of the cargo or from charterer’s failure to discharge cargo.
(vi) Vessel to remain on demurrage at all times. If the number of days on demurrage exceeds 60 days, owner’s have option to cancel agreement and to claim damages, by way of indemnity or otherwise, for all damages and losses and expenses whatsoever and howsoever caused including, but limited to, indirect and directly caused damages and losses and expenses.
(vii) Port disbursements for Ain Sukhna are for charterer’s account (excluding owner’s matters) and agents to confirm to owners prior vessel’s arrival that no payment for port d/a by owners will be required.
(viii) Bunkers consumed during the sea passage from Djibouti to Ain Sukhna to be paid by charterers immediately against presentation of owners according invoice. Consumption to be actually calculated from begin of sea passage until end of sea passage at prices as per last bunker invoice of which a copy to be provided.
(ix) Anchorage dues Djibouti as charged with agents invoice exceeding the time after 15 December 2009 to be paid into a joint account between lawyers which to be agreed upon by HBC’s lawyer and Agrimpex’s lawyer. Both parties to agree upon a procedure by next week to find out the responsibility for this costs. The same procedure applies for the costs and time used for the cleaning of the fouled bottom of the vessel. The expected amount to be paid into the same joint account and the same procedure applies for the finding of the responsible party.
(x) We suggest headowners and charters agree full set of original Bs/L showing Djibouti as destination to be exchanged either in London at our nominated representative’s office or in owners’ option at the office of NYK Bulkship Atlantic NV, Antwerp/Belgium against a new set of Bs/L or in case head owners agree in Switzerland. A LOI for change of destination in owner’s P+I Club wording to issued by charterers. Cargo to be discharged and released at Ain Sukhna against LOI issued an signed by charterers in replacement of the LOI already issued for Djibouti (delivery of the cargo in absence of original Bs/L).
(xi) Charterers to pay USD 1.8 mio on account of demurrage and costs/expenses to HBC on 6th of April 2010 any remaining balances to be settled immediately by charterers upon receipt of final SOA by fax/e-mail. Costs/expenses for anchorage dues and cleaning of fouled bottom to be dealt as per above paragraph.
4.	Subsequently, the discharge port was changed again, to Damietta, another Egyptian port, but on the Mediterranean coast. The terms of addendum no.2 were as follows (the numbering has again been added by me for ease of reference):
Addendum no/2 to C/P dated 23 October 2009 (including for avoidance of doubt the arbitration law and jurisdiction clause) MV “GLORY SANYE” :
(i) Without prejudice to all rights as previously reserved
(ii) It has been agreed that the cargo is to be discharged at the port of Damietta (Egypt) instead of Ain Sukhna (Egypt) as agreed in addendum no.1 and all other terms, conditions, clauses and paragraphs as per Charter Party dated 23 October 2009 and addendum no.1 and reservations of rights to remain in force.
5.	The tribunal found at paragraph 23:
“As a consequence of addendum no.2, since the port of Damietta is located on the northern, Mediterranean, coast of Egypt, it became necessary for the vessel to pass through the Suez Canal in the course of the voyage from Djibouti to the new discharge port.”
6.	Pursuant to the terms of the head charterparty the vessel was to be re-delivered at Port Said and so, regardless of any agreement between the disponent owners and charterers, the vessel would have had to pass through the Suez Canal in any event.  Under the terms of the head charter the disponent owners (as charterers) were responsible for the payment of all canal tolls and so, as between them and the registered owners, would have to have borne the costs of transiting the Suez Canal.
7.	In the arbitration the disponent owners claimed the costs of transiting the Suez Canal from their charterers as an expense arising from the charterers’ failure to discharge the cargo at Djibouti. The tribunal (Christopher Moss, Anthony Scott and Kenneth Rokison QC, as third arbitrator and chairman), dismissed that claim. The tribunal held that “in the context, “losses” or “expenses” must be construed as limited to additional losses and expenses which would not have been incurred in any event”. Since the disponent owners would have incurred the costs of transiting the Suez Canal even if the vessel had been discharged at Djibouti, the costs were not an expense which the charterers had agreed to bear pursuant to addendum no.1. There was however evidence that transit in ballast would have cost US$20,000 less than when laden and so the tribunal allowed the disponent owners’ claim to that extent.  
8.	The question for the court is whether the tribunal was right so to hold or whether the charterers were liable to indemnify the disponent owners against the costs of transiting the Suez Canal. This short point of construction has been expertly and concisely argued on both sides.
9.	The tribunal said at paragraph 36:
“It is true that HBC’s liability to pay the canal dues on the northerly voyage to Damietta was an expense which flowed from Huyton’s failure to discharge and take delivery of the cargo.”
10.	It can therefore be said that, as between the disponent owners and the charterers, the charterers’ failure to discharge at Djibouti gave rise to the need for the vessel to transit the Suez Canal and for the costs of so doing to be incurred. This is, it seems to me, a powerful argument for saying that the expense of transiting the Suez Canal is one in respect of which the charterers had agreed to indemnify the disponent owners pursuant to addendum no.1.
11.	The tribunal did not accept that argument because, in its view, expenses within the addendum were limited to additional expenses which would not have been incurred in any event and the disponent owners, even if the cargo had been discharged at Djibouti, would have been responsible for the payment of the canal dues on the redelivery voyage under the head charter to Port Said. The tribunal gave limited reasons for reaching that conclusion. The tribunal referred to “the context” of the clause as requiring expenses to be construed in that way but did not develop its reasoning any further. 
12.	There was no dispute between the parties as to the settled principles by which contracts are to be construed, though counsel emphasised different aspects of those principles. Thus Mr. Nolan, for the disponent owners, submitted that “the starting point is the wording of the document itself and the principle that the commercial parties who agreed the wording intended the words used to mean what they say in setting out the parties’ respective rights and liabilities” (per Aikens LJ in BMA Special Opportunity Hub Fund Ltd. V African Minerals Finance Ltd. [2013] EWCA Civ. 416 at paragraph 24). He further submitted that where the parties have used unambiguous language the court must apply it (relying upon Lord Clarke in The Rainy Sky [2011] 1 WLR 2900 at paragraph 23). Mr. Kulkarni relied upon the general statement of principle by Lord Clarke in The Rainy Sky at paragraph 21:
“… the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”
13.	In my judgment the background knowledge available to the parties when they agreed addenda nos. 1 and 2 was as follows:
i)	The voyage which the disponent owners had agreed to perform was a voyage from Constanza to Djibouti. After discharge at Djibouti the voyage would have ended.
ii)	However, the vessel was delayed at Djibouti because there were no receivers and the discharge port was changed, ultimately, to Damietta.
iii)	As a result of the change of the discharge port to Damietta the voyage would not end until the vessel had sailed north, transited the Suez Canal and discharged her cargo at Damietta.
iv)	A voyage from Constanza to Djibouti and back north through the Canal to Damietta was a more expensive voyage than that originally contracted for.
14.	Against that background addenda nos. 1 and 2 made provision for the increased length of the voyage by providing that the vessel was to remain on demurrage until completion of discharge (paragraph (iii) of addendum no.1), that port disbursements at the new discharge port were for the charterers’ account (paragraph (vii) of addendum no.1) and that bunkers consumed on the passage to the new discharge port were to be paid for by the charterers (paragraph (viii) of addendum no.1). Further, the disponent owners were to be indemnified against all losses, expenses and damages arising from the charterers’ failure to discharge the cargo (paragraph (v) of addendum no.1). 
15.	By agreeing to these terms the charterers were able to bring the voyage (and their liability to pay demurrage) to an end and the disponent owners were able to discharge the cargo and thereafter redeliver the vessel to the registered owners. That was the commercial aim or objective of the addenda. The price agreed to be paid by the charterers for bringing the voyage to an end at Damietta was, in substance, to pay for the extra time, cost and expense involved in discharging at Damietta compared with Djibouti.
16.	In that context it seems to me that the relevant question when applying paragraph (v) of addendum no.1 to an expense paid by the disponent owners is to ask whether, as the clause requires, the expense arose from the charterers’ failure to discharge the cargo at Djibouiti. If it did, because the expense would not have been required in order to perform the original voyage to Djibouiti but was required in order to perform the amended voyage, then it was an expense in respect of which the charterers had agreed to indemnify the disponent owners. If it did not, because it would have been required in order to perform the original voyage to Djibouti, then it would not be an expense in respect of which the charterers had agreed to indemnify the disponent owners. 
17.	The cost of transiting the Suez Canal was an expense which would not have been required to perform the original voyage to Djibouiti but was required to perform the amended voyage to Damietta. It was therefore an expense in respect of which the charterers had agreed to indemnify the disponent owners.
18.	Construing and applying the clause in that way gives effect to the clear and unambiguous language used by the parties. It is the meaning which, in my judgment, a reasonable person, with the background knowledge available to both parties, would have understood the clause to mean.
19.	The tribunal, in reaching its different conclusion, had regard to the fact that the disponent owner, as charterer under the head charter, was liable under the head charter to bear the costs of transiting the Suez Canal because redelivery under the head charter was to take place at Port Said. By doing so the tribunal was able to say that the expense was not “additional”, even though the expense was required by the amended voyage and not by the original voyage. However, there was no finding that the disponent owners’ liability under the head charter was part of the background knowledge available to both parties and Mr. Kulkarni did not suggest that it was. The disponent owners’ liability to the registered owners was not, therefore, a factor to be taken into account when construing and applying the clause in question. In earlier times it would have been regarded, as Mr. Nolan submitted, as res inter alios acta and therefore irrelevant when construing and applying the clause.
20.	The tribunal, beyond stating that the clause in question had to be construed “in its context” did not elaborate upon its reasoning. Mr. Kulkarni sought to uphold the tribunal’s decision in this way. He submitted that the effect of addendum no.1 was that, for the 60 day period provided for by paragraph (vi), the disponent owners were unable to terminate the charter and sue for damages but during that period the owners were to be compensated in line with their common law entitlement to damages. Such damages, and in particular, the expenses of mitigating the disponent owners’ loss, would not include the costs of transiting the Suez Canal because the disponent owner was obliged to incur such expense in order to redeliver the vessel under the head charter and so recovery of such expenses as damages would offend the compensatory principle which underlies the assessment of damages. Pursuant to that principle the disponent owners could only recover the net, additional loss which they had suffered as a result of the charterers’ breach. That was “the context” in which the clause in question fell to be construed and applied.
21.	I was not persuaded that Mr. Kulkarni’s submission that the costs of transiting the Suez Canal could not have been recovered by way of the remedy of damages was correct. For it seems to me that the disponent owners would be entitled to claim as damages for breach of the voyage charter the difference between the cost of performing the voyage to Djibouti, on the one hand, and the cost of performing the voyage to Damietta on the other hand. The difference would be the expense of mitigating the disponent owners’ loss. On that basis the cost of transiting the Suez Canal on the northbound voyage would be recoverable as damages. Such damage would be within the reasonable contemplation of the parties and was no less a real expense by reason of the fact that under the head charter, the terms of which the charterers were unaware, the disponent owners were obliged to redeliver in Port Said and pay for canal dues. But in any event the parties had adopted a simple formula in order to decide whether the charterers were liable to indemnify the disponent owners in respect of an expense, namely, did it arise from the charterers’ failure to discharge the cargo. For the reasons which I have endeavoured to express the expense of transiting the Suez Canal did arise from the charterers’ failure to discharge the cargo at Djibouti. As a result of that failure the cargo had to be discharged at Damietta. That required the transit of the Suez Canal in order to complete the (amended) voyage charter. The fact that the vessel was shortly to be redelivered at Port Said under the head charter does not, in my judgment, affect that analysis. The disponent owners, as between them and the head owners, would have to pay for the bunkers consumed on the voyage north and that would not prevent the charterers being liable for such bunkers as between them and the disponent owners (pursuant to paragraph (viii) of addendum no.1). Similarly, the fact that the disponent owners would have to pay for the cost of transiting the Suez Canal as between them and the head owners would not prevent the charterers from being liable to indemnify the disponent owners in respect of such costs (pursuant to paragraph (v) of addendum no.1). Mr. Kulkarni characterised the result as a “windfall” for the disponent owners. I do not agree that this is an apt description of the result. It will often be the case that a disponent owner can recover from his charterer that which he is liable to pay to his head owner. Indeed, the disponent owner is in business to make, if he can, a profit from trading the vessel.   
22.	For these reasons I have reached the conclusion, with great respect to the tribunal, that its conclusion was wrong in law and that the appeal must be allowed.