On Wednesday 16 December 2020, Mr Justice Foxton handed down judgment in the case of SK Shipping Europe Plc (“SK Shipping”) and Capital VLCC Corp and Capital Maritime and Trading Corp (“CMTC”) following a 10-day trial in late October/early November.
Foxton J has found in favour of SK Shipping that Capital VLCC Corp as “Charterers” were in repudiatory breach of a long term time charter for the early re-delivery of SK Shipping’s VLCC “C Challenger” (the “Charterparty”) and that Charterers’ claims to rescind the Charterparty and for damages in deceit under s2(2) of the Misrepresentation Act 1967 or otherwise under s2(1) of the Misrepresentation Act 1967 failed, principally on the issues of inducement and affirmation. SK Shipping had also brought the proceedings against CMTC to enforce its obligations under the Charterparty as guarantor. CMTC disputed that any such agreement was enforceable pursuant to the Statute of Frauds Act 1677. In the alternative, CMTC claimed that it should be entitled to rescind the guarantee on account of SK Shipping’s alleged misrepresentation(s). These arguments were rejected by Foxton J who held CMTC is liable under the guarantee for outstanding hire, damages and, notably, costs as further addressed below.
SK Shipping was represented by Chris Smith QC of Quadrant Chambers, instructed by Preston Turnbull LLP, namely Fanos Theophani, Harriet Thornton and Hayley Flood.
The proceedings were commenced in 2018, initially in respect of four time charters entered into on materially identical terms by SK Shipping and CMTC, who thereafter established special purpose vehicle (“SPV”) chartering entities, which they nominated as charterers and, SK Shipping said, guaranteed their obligations. In each case SK Shipping claimed that the defendant SPV had repudiated the charter by redelivering the vessel prematurely without justification (in a falling market). SK Shipping said that it accepted those repudiations and claimed damages (along with various sums that were already due under the charters at the date of termination).
The defendant SPVs contended that certain pre-contractual representations were made by or on behalf of SK Shipping in relation to the speed and consumption of the vessels and that those representations were untrue and/or that the vessels were generally unable to meet the speed and consumption warranties contained in the charters. On this primary basis (amongst a number of further arguments that SK Shipping maintained were not repudiatory), and/or because SK Shipping failed to take the steps it was asked and required to take under the charters to rectify the speed and performance issues, the defendants asserted that they were entitled to terminate and/or rescind the charters. Whilst three of these claims settled in early September 2020, the claim for the C Challenger went to trial.
A copy of the Judgment can be found here.
The following points are particularly of note and will be addressed in more detail in subsequent articles by Preston Turnbull:-
- Following Showa Oil Tanker Co Ltd of Japan v Maravan SA of Caracas (The Larissa)  2 Lloyd’s Rep 325, which Foxton J stated, “has stood for 37 years without criticism and was cited with approval in Kingscroft [Kingscroft Insurance Co Ltd v Nissan Fire & Marine Ins Co Ltd  1 Lloyd’s Rep IR 603]”, he concluded that, “there are good reasons why the mere offer of a speed and consumption warranty, and in particular of a continuing warranty, as in this case, should not of itself be held to involve an implicit representation as to the vessel’s current or recent performance”.
- In testing the issue of inducement on the misrepresentations that had been identified, the appropriate counter factual or relevant question is not what the representee would have done if it had known the true position, but what it would have done if the representation had not been made at all. This principle was established in Raiffeisen Zentralbank Osterreich AG (RZB) v The Royal Bank of Scotland PLC (RBS)  EWHC 1392 and has subsequently been confirmed in a number of first instance decisions. Foxton J also found statements of the law by the Court of Appeal to similar effect in Downs v Chappell  1 WLR 426, 433 and Dadourian International Group Inc v Simms  EWCA Civ 169.
- That, having knowledge of the right to rescind, Charterers’ conduct in subchartering the vessel to Trafigura and the subsequent voyage instructions given by Charterers to SK Shipping (thereby communicating their decision to SK Shipping) was consistent in law with an unequivocal decision to maintain the Charterparty. Foxton J further concluded that Charterers’ previous reservations of rights did not prevent this conduct from being affirmatory.
- Section 4 of the Statute of Frauds Act 1677 provides: “[N]o action shall be brought ... whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriages of another person ... unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.” In this case, it was accepted that CMTC had not signed the Charterparty and the issue was whether “some memorandum or note” of the guarantee was signed by someone authorised by CMTC. In determining that the broker who facilitated the charter acted as an intermediate broker and as such was authorised to pass on communications to SK Shipping, Foxton J found a number of written documents signed by or on behalf of the broker which satisfied the section 4 requirement for the purpose of evidencing the guarantee. Significantly, Foxton J was also persuaded that “there are likely to have been documents produced within CMTC in connection with the approval of the Charterparty which have not been produced and which, given the likely formality of such documents, are likely to have satisfied the section 4 requirement”. For these reasons CMTC’s reliance on s4 of the Statue of Frauds Act 1677 failed.
- That CMTC as guarantor was liable for costs orders made against Charterers. Whether or not the guarantee of obligations under a contract will extend to costs is determined by the construction of the guarantee and the context of the principal contract. In this case the Charterparty identified Charterers as, “TBN Company, which shall be guaranteed by [CMTC]”. Foxton J held that the guarantee was entered into as a condition of CMTC’s right to nominate the charterer. Given the unconstrained nature of that choice, Foxton J concluded that the natural scope of the guarantee is to extend to any liabilities of a kind which CMTC would have owed to SK Shipping if it had not exercised the right of nomination but had been the charterer itself. This would therefore extend, in his determination, to CMTC’s liability for costs orders made in the proceedings brought by SK Shipping to enforce the Charterparty.
This judgment accordingly addresses a number of legal principles that will be of particular interest to both shipowners and charterers and has wider ramifications as to the application of s4 of the Statute of Frauds Act 1677, which is now capable of being satisfied by memorandums or notes that most likely would have existed but have not been disclosed.
A Consequentials Hearing will follow early in the new year to determine quantum, costs, interest and any applications for permission to appeal.