BG Gas AS v JAS Shipping Ltd [2010] EWCA Civ 68

Thursday February 11th, 2010
Neutral Citation Number: [2010] EWCA Civ 68
Case No: A3/2009/0842
A3/2009/0842A

COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN’S BENCH DIVISION, COMMERCIAL COURT
THE HONOURABLE MR JUSTICE BURTON
2008-605

Royal Courts of Justice
Strand, London, WC2A 2LL
11/02/2010

B e f o r e :

LORD JUSTICE RIX
LORD JUSTICE WILSON
and
SIR SCOTT BAKER

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Between:

BW GAS AS
Appellant / Claimant
- and -

JAS SHIPPING LTD
Respondent / Defendant

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Mr Philip Edey QC (instructed by Messrs Ince And Co) for the Appellant
Mr Michael Coburn (instructed by Messrs Holman Fenwick Willan LLP) for the Respondent
Hearing date : Thursday 10th December 2009

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HTML VERSION OF JUDGMENT
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Crown Copyright ©

    Lord Justice Rix :

  1. The claimant in these proceedings, in this court the appellant, is the bareboat charterer of a new LPG carrier, built by Kawasaki in Japan. Its claim is against its contract partner, the disponent owner under the bareboat charter, which had in its turn bareboat chartered the vessel from the original buyer of the vessel from Kawasaki. Thus at the top of a chain of contracts there is a building contract between Kawasaki and the buyer of the vessel from Kawasaki. Then there is a bareboat charter from the buyer to the head-charterer. Then there is a bareboat sub charter from that head-charterer as disponent owner to the claimant sub-charterer in these proceedings. The claim is that the disponent owner had failed to deliver the vessel to the claimant with all the so-called “owner’s supply”, also called “buyer’s supply”, items installed in the vessel. Those items are defined in the building contract’s specifications, and the bareboat charters in turn require the vessel to have been constructed in accordance with the building contract and its specifications. The judge rejected the claim, save to the extent of what he understood to have been a concession made in respect of a number of the items claimed which were required by convention or class rules or regulations governing the equipment of the vessel. The claimant appeals, and submits that it is entitled to be compensated for the failure to deliver the vessel with all the items claimed. The parties and their contracts
  2. I have already introduced the builder, Kawasaki, or to give it its full name, Kawasaki Shipbuilding Corporation (the “builder”). The building contract is dated 21 April 2004, and is for the construction of a single screw motor driven liquefied petroleum gas carrier of 80,000 cubic meters cargo tank capacity, described as Kawasaki Hull No 1583 (the “building contract”). The buyer under the building contract was Fair Wind Navigation SA of Panama (the “buyer”).
  3. The building contract. The building contract is made up of its general terms, which contain 21 articles (articles I to XXI), and incorporated specifications and plans (the “specifications”). There are separate specifications for the Hull, Cargo System, Machinery, and Electric and Automation. The Hull specification begins with some general provisions, paragraph 14 of which is headed “Owner’s Supply”. That is the paragraph with which this appeal is principally concerned (“paragraph 14″). I shall set out paragraph 14 in full below. It sets out a rag-bag of items and states that they “shall be supplied by the Owner on the Owner’s account”. The items run from such personal matters as the “Owner’s flag” to such apparently important engineering items as “Cylinder lubricator system for main engine (Alpha system)”. They include items important to the navigation of the vessel in its operation, such as charts, navigation books, and training manuals required by SOLAS (the Saving of Life At Sea convention). They also include items of a purely generic description viz “All other spares, stores and equipment over and above the rule requirements and the Specifications”. The claim in these proceedings is premised on the failure of the disponent owner under the sub charter to supply the vessel with a number of these paragraph 14 items.
  4. Paragraph 14 had previously been introduced in article XVII of the main part of the building contract. Article XVII is headed “Buyer’s Supplies”. The effect of this article, whose terms I shall set out below, is that the buyer is responsible for supplying buyer’s supplies “as specified in the Specifications” (ie what is called owner’s supply in paragraph 14), and the builder is responsible for storing, handling and installing such supplies in or on the vessel. If, however, the buyer fails to supply such items, then the builder shall be entitled to proceed with the vessel’s construction without them, “and the BUYER shall accept and take delivery of the VESSEL so constructed”.
  5. Another important paragraph of the general part of the Hull specification is paragraph 5 (“paragraph 5″). This is headed “Classification Rule and Regulation”. This paragraph begins: “The Ship shall be built in accordance with the following rules and regulations…” It refers inter alia to class rules and regulations, that is to say the rules and regulations of NKK (Nippon Kaiji Kyokai), which is the classification society under which the vessel was built. It also refers to a number of international conventions which regulate the building, equipment and navigation of sea-going vessels. Of some “recommendations and guidelines” (in particular those of OCIMF or Oil Companies International Marine Forum) it is said that they “shall be applied as far as practicable”. It is also said (at D of paragraph 5) that “Any recommendations of the above rules and regulations, and any resolutions and recommendations of IMO are not to be applied, if not stated otherwise in the Specifications”. The concession accepted by the judge below related to paragraph 14 items which also fell within paragraph 5. He dismissed the claim in respect of paragraph 14 items except where such items were mandated under paragraph 5.
  6. I shall have more to say about the structure of the building contract below. The above will suffice for the present.
  7. The head charter. The head bareboat charter is also dated 21 April 2004. It is made between the buyer as “Owners” and JAS Shipping Ltd as “Charterers”. I shall refer to that charter as the “head charter” and to JAS Shipping as the “head charterer”. The head charter is on the Barecon 2001 form. It refers to the vessel as Kawasaki Hull No 1583. The period and hire rate are obscure. Because the vessel is described as a newbuilding, the standard provisions of its Part II are much amended by deletion, and the optional provisions of Part III which are designed to apply only to newbuilding vessels have been brought into play. Thus the standard Part II provisions that before and upon delivery “The Owners shall…exercise due diligence to make the Vessel seaworthy” and that on delivery “The Vessel shall be properly documented…in accordance with the laws of the flag State…and the requirements of the classification society” are deleted. Their function is replaced by the provisions of Part III which in essence provide that –

    “The Vessel shall be constructed in accordance with the Building Contract…as annexed to this Charter, made between the Builders and the Owners and in accordance with the specifications and plans annexed thereto, such Building Contract, specifications and plans having been countersigned as approved by the Charterers.”

  8. There are additional terms of the head charter which inter alia contain provisions relating to the construction, supervision and delivery of the vessel under the building contract (clause 33), and to post-delivery warranties by reference to the building contract’s guarantees (clause 32). I shall need to refer to them further below. In essence, however, they provide that on delivery the head charterer is entitled to a vessel built in accordance with the building contract; that subject to her being so constructed and having completed her acceptance trials the head charterer shall take delivery of the vessel and is not entitled to refuse acceptance of such delivery; and that thereafter the head charterer is entitled to enforce the buyer’s rights under the building contract against the builder as assignee of such rights, but shall have no claim against the buyer under the charter in respect of the condition of the vessel, her seaworthiness “or otherwise howsoever”.
  9. The sub charter. The sub bareboat charter is dated 30 January 2006. At that time the vessel was still under construction or yet to be constructed. I shall call this charter the “sub charter”. It is made between JAS Shipping Ltd, the head charterer, as “Owners” and Bergesen Worldwide Gas AS as “Charterers”. I shall refer to Bergesen, the “BW Gas AS” of these proceedings, as the “sub charterer”. The charter is again on the Barecon 2001 form and has been described as being on essentially back to back terms with the head charter. The vessel is again referred to as “Kawasaki Hull No 1583″. The period of the charter is now given as ten years. The hire is defined. Delivery of the vessel is to be as arranged by the builder and in accordance with the head charter. The standard Part II provisions are again deleted and amended, in particular those concerned with matters of seaworthiness, as they had been under the head charter. Part III again stipulates that the vessel shall be constructed in accordance with the building contract and its specifications, as annexed. There are similar, but not identical additional clauses. Clause 33 is headed “Head bare boat charter party, building contract, supervision and delivery” and provides for the sub charterer to appoint one or more representatives to observe the construction of the vessel. Clause 32 provides for the assignment of rights against the builder. The essence of these provisions is the same as under the head charter (see above), namely that the vessel is to be built in accordance with the building contract and its specifications, and that upon acceptance of the vessel for delivery the sub charterer is to have no further claim against the head charterer.
  10. We were told that the vessel was delivered under the building contract and the two charters on 29 June 2007. The judgment below says nothing about the circumstances of that delivery, but we were told during the appeal hearing that such delivery was, at any rate on the part of the sub charterer, accepted on a without prejudice basis. There is no evidence about this. The parties’ statements of case contain nothing regarding delivery of the vessel, but rather refer to an agreement made between the parties well prior to delivery without prejudice to their rights to the effect that if the sub charterer supplied the vessel at its cost with what it considered it was entitled to by way of paragraph 14 items, then the issue could be resolved either by amicable discussion or reference to a third party.
  11. A bareboat charter is in effect a lease of the vessel concerned. Unlike an ordinary charter, when the owner retains possession of the vessel through its own crew and merely provides the vessel’s services to the charterer, under a bareboat charter the owner hands over possession of the vessel to the charterer, who operates it with his own crew and is totally responsible for its operation and maintenance. Thus a bareboat charterer is often referred to as the vessel’s owner (or owner pro hac vice). The proceedings
  12. In these proceedings the sub charterer (as claimant and now as appellant) claims against the head charterer for the latter’s failure to supply the paragraph 14 items. It is alleged that under the sub charter the head charterer promised that the vessel would be constructed in accordance with the building contract and its specifications, and that in breach of that promise the head charterer “did not provide the Vessel with Buyer’s Supplies”. The sub charterer therefore claims a total of NOK 577,499.70 and US$ 615,321.74 which it has paid to make good the vessel’s deficiencies.
  13. The claim is also advanced by reference to implied terms –

    “(1) that the Defendant would supply the Vessel with such items as would, in the ordinary course, be supplied by an owner to a charterer under a bareboat charter of a newbuild LPG carrier; or

    (2) that, insofar as the Shipbuilding Contract identified Buyer’s Supply items of a generic description, the Defendant was bound to supply such items as are necessary and/or standard for such a Vessel and/or as would, in the ordinary course, be supplied by an owner to a charterer under a bareboat charter of a newbuild LPG carrier.”

    These implied terms are designed to define matters which paragraph 14 had left ill defined, for instance to define what fell within such generic descriptions as “All other spares, stores and equipment over and above the rule requirements and the Specifications” (see above).

  14. The head charterer’s defence is in essence that it was under no obligation under the building contract to supply such items, and thus could not be in breach of contract under the sub charter. Such items were for the ultimate operator of the vessel to choose and supply.
  15. There is no pleaded reliance by the sub charterer on paragraph 5 of the Hull specification. There is no particularisation of which items forming part of the sub charterer’s claim fall within the requirements of paragraph 5.
  16. The parties drafted a List of Issues & Common Ground. This document contains the following passages: Common Ground

    4. As to the terms of the [sub charter], the Defendant undertook that the Vessel:

    4.1 Would be constructed in accordance with the Shipbuilding Contract (Part III clause 1(a)).

    4.2 Would be built as described in the Head Bareboat Charter (clause 33(b)). The Head Bareboat Charter provided at clause 33(b) that the Vessel would be constructed in accordance with the Shipbuilding Contract including specifications and plans.

    5. A dispute arose between the parties as to whether the Defendant was obliged to equip the Vessel with certain items, in particular the items to be furnished by the Buyer in the specifications.

    6. The Claimant supplied the items to the Vessel without prejudice to its contention that the Defendant was obliged to equip the Vessel with those items…

    The Issues

    1. Under the [sub charter], was the Defendant obliged to:

    Equip the Vessel with the Buyer’s Supplies (as defined in the Shipbuilding Contract)?

    Supply the Vessel with such items as would, in the ordinary course, be supplied by an owner to a charterer under a bareboat charter of a newbuild LPG carrier and/or are necessary and standard items?

    2. Was the Buyer and/or the Defendant only obliged to supply such of the Buyer’s Supplies:

    as it chose to supply; or

    as were required to make the Vessel seaworthy for her acceptance trials, together with such further items as it chose to supply; or

    as in its reasonable discretion it chose to supply; or

    as would, in the ordinary course, be supplied by an owner to a charterer under a bareboat charter of a newbuild LPG carrier and/or as were necessary and standard items?”

  17. There were several other issues defined, but by a case management order made by Teare J on 5 December 2008 it was ordered inter alia that (only) issues 1 and 2 cited above should be tried as preliminary issues. That order made no provision for any factual or expert evidence. The contract provisions
  18. It is now convenient to set out relevant contract provisions verbatim, as follows.
  19. (i) The building contract

    “THIS CONTRACT…WITNESSETH;

    In consideration of the mutual covenants contained herein, the BUILDER agrees to build, launch, equip and complete…( hereinafter called the “VESSEL”) more fully described in Article I hereof…and to sell and deliver the VESSEL to the BUYER, and the BUYER agrees to purchase and take delivery of the VESSEL from the BUILDER and to pay for the same, all upon the terms and conditions hereinafter set forth…

    ARTICLE I – DESCRIPTION AND CLASS

    1. DESCRIPTION

    The VESSEL…shall be designed, constructed, equipped and completed in accordance with the provisions of this Contract and following the Specifications and Plans of the date hereof, attached hereto and signed by the parties hereto (hereinafter collectively called the “Specifications”), making an integral part hereof…

    2. CLASSIFICATION RULES AND REGULATIONS

    The VESSEL, including its machinery, equipment and outfittings shall be constructed in accordance with the rules…of and under special survey of Nippon Kaiji Kyokai…

    The VESSEL shall also comply with the rules, regulations and requirements of IMO and other regulatory bodies as described in the Specifications in effect as of the date of this Contract…

    ARTICLE II – CONTRACT PRICE AND TERMS OF PAYMENT

    1. CONTRACT PRICE

    …The Contract Price shall be exclusive of the articles to be supplied by the BUYER as provided in Article XVII hereof and described as the BUYER’s Supply in the Specifications…

    ARTICLE VI – TRIALS

    1. TRIAL RUN

    (c) How Conducted

    (i) All expenses in connection with the trial run are to be for the account of the BUILDER…

    (ii) Notwithstanding the foregoing, fuel oil, lubricating oils and greases necessary for the trial run of the VESSEL shall be supplied by the BUYER at the Shipyard prior to the time of trial run, and the BUILDER shall pay the BUYER, as soon as practically possible after delivery of the VESSEL, the cost of the quantities of fuel oil, lubricating oil, lubricating oils and greases consumed during the trial run at the orginal purchase price…

    3. METHOD OF ACCEPTANCE OR REJECTION

    (a) Upon completion of the trial run, the BUILDER shall give the BUYER a notice by facsimile confirmed in writing of completion of the trial run, as and if the BUILDER considers that the results of the trial run indicate conformity of the VESSEL to this Contract and the Specifications. The BUYER shall, as early as practicably possible within three (3) business days after receipt of such notice from the BUILDER, notify the BUILDER by facsimile confirmed in writing of its acceptance or rejection of the Vessel…

    (c) In any event that the BUYER rejects the Vessel, the BUYER shall indicate in its notice of rejection in what respect the VESSEL, or any part or equipment thereof does not conform to this Contract and/or the Specifications…

    ARTICLE VII – DELIVERY

    2. WHEN AND HOW EFFECTED

    Provided that the BUYER shall have fulfilled all of its obligations stipulated under this Contract, delivery shall be effected forthwith by the concurrent delivery by each of the parties hereto to the other of the PROTOCOL OF DELIVERY AND ACCEPTANCE, acknowledging delivery of the Vessel by the BUILDER and acceptance thereof by the BUYER…

    ARTICLE XVII – BUYER’S SUPPLIES

    1. RESPONSIBILITY OF BUYER

    (a) The BUYER shall, at its own risk, cost and expense, supply and deliver to the BUILDER all of the items to be furnished by the BUYER as specified in the Specifications (hereinafter called the “BUYER’s Supplies”) at warehouse or other storage of the Shipyard in the proper condition ready for installation in or on the VESSEL, in accordance with the time schedule designated by the BUILDER.

    (b) In order to facilitate the installation by the BUILDER of the BUYER’s Supplies in or on the VESSEL, the BUYER shall furnish the BUILDER with necessary specifications, plans, drawings, instruction books, manuals, test reports and certificates required by the rules and regulations…

    (c) Any and all of the BUYER’s Supplies shall be subject to the BUILDER’s reasonable right of rejection, as and if they are found to be unsuitable or in improper condition for installation…

    (d) Should the BUYER fail to deliver any of the BUYER’s Supplies within the time designated, the Delivery Date shall be automatically extended for a period of such delay in delivery provided that such delay in delivery shall affect delivery of the VESSEL. In such event, the BUYER shall be responsible and pay to the BUILDER for all losses and damages incurred by the BUILDER by reason of such delay in delivery of the BUYER’s Supplies and such payment shall be made upon delivery of the VESSEL. If delay in delivery of any of the BUYER’s Supplies exceeds thirty (30) days, then, the BUILDER shall be entitled to proceed with construction of the VESSEL without installation thereof in or on the VESSEL, without prejudice to the BUILDER’s other rights as hereinabove provided, and the BUYER shall accept and take delivery of the VESSEL so constructed.

    2. RESPONSIBILITY OF THE BUILDER

    The BUILDER shall be responsible for storing and handling with reasonable care of the BUYER’s Supplies after delivery thereof at the Shipyard, and shall, at its own cost and expense, install them in or on the VESSEL, unless otherwise provided herein or agreed by the parties hereto, provided, always, that the BUILDER shall not be responsible for quality, efficiency and/or performance of any of the BUYER’s Supplies and is under no obligation with respect to guarantee of such equipment against any defects caused by poor quality, performance and/or efficiency of the BUYER’s Supplies.”

  20. (ii) The Hull specification

    “5. CLASSIFICATION, RULE AND REGULATION

    A. The ship shall be built in accordance with the following rules and regulations…[listing NKK classification and various international conventions]

    B. The following rules and regulations shall be applied…[listing other international conventions and US Codes]

    C. The following recommendations and guidelines shall be applied as far as practicable…[listing OCIMF recommendations and guidelines]

    D. Any recommendations of the above rules and regulations, and any resolutions and recommendations of IMO are not to be applied, if not stated otherwise in the Specifications…”

  21. “14. OWNER’S SUPPLY The following articles shall be supplied by the Owner on the Owner’s account. Supervision fees for the Owner’s supply articles, if any, shall be paid by the Owner. However, custody charges and installation costs incurred in the Builder’s Shipyard shall be paid by the Builder. The Owner shall inform the Builder of items, quantity, size, etc. at an early stage of the design.

    Charts
    Books Navigation books
    Radio books
    Hose Rubber hoses for fuel and gas oil and cargo hoses
    Others Owner’s flag
    Blankets and covers
    Table utensils and kitchen utensils
    Medicine and medical equipment
    (excluding those for the use in lifeboat and liferaft)
    Ropes other than those specified in the Specifications
    Gymnasium equipment
    Business machines other than those specified in the Specifications Consumable stores
    Boiler water test kit
    Flexible or removable equipment and fittings not specified in the specifications, which shall be required or recommended by OCIMF’s recommendation mentioned in Para.5
    Carpenter’s tools
    Portable gas detector in excess of rule requirement
    Gas chromatograph, if fitted
    Muster list
    Shipboard oil pollution emergency plan
    Garbage management plan
    Garbage record book
    Training manuals required by SOLAS
    Cylinder lubricator system for main engine (Alpha system)
    All other spares, stores and equipment over and above the rule requirements and the Specifications
    Consumable liquid* Water
    Fuel oil (including diesel oil and gas oil)
    Lubricating oil
    Grease
    System oil
    Others, if any

    (* Those which will be consumed in tests and trials shall be borne by the Builder.)

    LPG, propane gas and butane gas remaining in the cargo tanks at the time of completion of the gas handling test are to be born[e] by the Owner for the Owner’s account.”

  22. (iii) The Head Charter

    “Part III

    Provisions to apply for newbuilding vessels only…

    1. Specifications and Building Contract See also Clause 33

    (a) The vessel shall be constructed in accordance with the Building Contract (hereinafter called “the Building Contract”) as annexed to this Charter and in accordance with the specifications and plans annexed thereto…

    32. POST-DELIVERY WARRANTIES

    (a) The owners hereby assign to the Charterers from the date hereof until the termination or expiry of this Charter except in respect of a Total Loss…without representation, warranty or covenant of any kind, effective upon delivery of the Vessel to the Charterers the right to enforce and exercise all rights of warranty, guarantee and covenant which the Owners may have in respect of the Vessel or otherwise directly against the Builder or any manufacturer of any part of the Vessel. The Charterers shall be entitled to take such action in the name of the Owners against the Builder…

    (b) Specifically with respect to the warranties set forth in the Building Contract (the “Builder Guarantees”) the Owners hereby assign to the Charterers during the term of the Charter the benefit of and rights to administer, and the proceeds of all claims under, the Builder Guarantees…

    33. BUILDING CONTRACT, SUPERVISION AND DELIVERY

    (a) The Charterers may in their discretion and at their expense appoint one or more individuals to serve as their authorised representatives (the “Charterers’ Supervisor”) for the purpose of observing the various stages of construction of the Vessel…

    (b) The Vessel shall be built in accordance with the Building Contract and shall be of the description set out therein…

    (c) Subject to the Vessel being constructed in accordance with the Building Contract and having completed her acceptance trials in accordance with the Building Contract, the Owners shall give and the Charterers shall take delivery of the Vessel afloat when ready for delivery at LPG Terminal as per Article VII of the Building Contract…

    (d) Provided the Vessel has been built in accordance with the terms of the Building Contract the Charterers shall not be entitled to refuse acceptance of delivery of the Vessel under this Charter. Upon and after acceptance of the Vessel by the Charterers, the Charterers shall not be entitled to make any claim against the Owners in respect of any conditions, representations or warranties whether express or implied as to the condition of the Vessel, the seaworthiness of the Vessel or in respect of delay in delivery or otherwise howsoever…

    (i) The Charterers shall supply fuel oil, lubricate oils and greases necessary for the trial run of the Vessel as provided in the Article VI 1 (c) (ii) of the Building Contract in place of the Owners. The Charterers shall be entitled to receive payment by the Builder in respect of the costs of the quantities of fuel oil, lubricate oils and greases consumed during the trial run at the original purchase price…

    (j) The Charterers shall take over and purchase from the Builder the remaining L.P.G on the Vessel supplied by the Builder for the Gas Handling Test at the time of the delivery of the Vessel under this Agreement from the Owners at the original purchase price…”

  23. (iv) The Sub Charter

    “Part III

    Provisions to apply for newbuilding Vessels only…

    1. Specifications and Building Contract See also clause 33

    (a) The Vessel shall be constructed in accordance with the Building Contract (hereinafter called “the Building Contract”), annexed to the Bare Boat Charter Party as annexed attached to this Charter as Exhibit 1, made between the Builders and the Head Owners and in accordance with the specifications and plans annexed thereto, such Building Contract, Head Bare Boat Charter Party, specifications and plans having been countersigned as approved by the Charterers.

    (b) No change shall be made in the Building Contract or in the specifications or plans of the Vessel as approved by the Charterers as aforesaid, without the Charterers’ consent.

    (c) The Charterers will have the right to send their representative to the Builders’ Yard as part of the Owners delegation to observe the Vessel during the course of her construction to satisfy themselves that construction is in accordance with such approved specifications and plans as referred to under sub-clause (a) of this Clause. See Clause 33(c) which shall govern…

    32. POST-DELIVERY WARRANTIES

    (a) The Owners hereby assign to the Charterers from the date hereof until the termination or expiry of the Charter except in respect of a Total Loss…all rights of warranty, guarantee and covenant which the Owners may have in respect of the Vessel or otherwise directly against the Builder or any manufacturer of any part of the Vessel…

    (b) Specifically with respect to the warranties set forth in the Head Bare Boat Charter Party (the “Builder Guarantees”), the Owners hereby assign to the Charterers during the term of the Charter the benefit of the proceeds of all claims under, the Builder Guarantees…

    (c) The Owners shall on behalf of and at the request of the Charterers assert and enforce all such rights which have been assigned to the Charterers hereunder, and to take such action against the Head Owner, the Builder or any manufacturer in respect of infringement of warranty, guarantee and covenant in relation to the Vessel or any part thereof or otherwise…

    33. HEAD BARE BOAT CHARTER PARTY, BUILDING CONTRACT, SUPERVISION AND DELIVERY

    (a) The Charterers may in their discretion and at their expense appoint one or more individuals to serve as their authorised representatives (the “Charterers’ Supervisor”) for the purpose of observing the various stages of construction of the Vessel…

    (b) The Vessel shall be built as described in the Head Bare Boat Charter Party…

    (c) Subject to the Vessel being constructed as required by the Head Bare Boat Charter Party and having completed her acceptance trials as called for in the Head Bare Boat Charter Party, the Owners shall give and the Charterers shall take delivery of the Vessel afloat when ready for delivery at LPG Terminal as per Article VII of the Building Contract…

    (d) Provided the Vessel has been built in accordance with the terms of the Head Bare Boat Charter Party the Charterers shall not be entitled to refuse acceptance of delivery of the vessel under this Charter. Upon and after acceptance of the Vessel by the Charterers, the Charterers shall not be entitled to make any claim against the Owners in respect of any conditions, representations or warranties whether express or implied as to the condition of the Vessel, the seaworthiness of the Vessel or in respect of delay in delivery or otherwise howsoever…

    (i) The Charterers shall supply fuel oil, lubricate oils and greases necessary for the trial run of the Vessel as provided in Article VI 1 (c) (ii) of the Building Contract in place of the Head Owners…

    (j) The Charterers shall take over and purchase from the Builder the remaining L.P.G on the Vessel supplied by the Builder for the Gas Handling Test at the time of delivery of the Vessel under this Agreement from the Owners at the original purchase price…

    39. IMPROVEMENT AND ADDITIONS

    The Charterers shall have the right to fit additional equipment and to make severable improvements and additions at their expense and risk. Such additional equipment, improvements and additions shall be removed from the Vessel without causing any material damage to the Vessel…provided however that the Charterers shall redeliver the Vessel without removing such additional equipment, improvements and additions if the Owners consent to such non-removal before the redelivery…

    44. NAME

    …During the Charter period, the Charterers shall have the liberty to paint the Vessel in their own colours, install and display their funnel insignia and fly their own house flag. Painting and instalment shall be at Charterers’ expense and time…

    47. REDELIVERY

    The Charterers shall redeliver to the Owners the Vessel with everything belonging to her at the time of redelivery including spare parts on board, used or unused subject to Clause 39 hereof. The Owners shall take over and pay to the Charterers for remaining bunkers and unused lubricating oils including hydraulic oils, and greases, unbroached provisions, paints, ropes and other consumable stores as per Clause 54 at the then current market prices at the port of redelivery. The Owners shall take over and pay the Charterers for any residual LPG remaining on board the Vessel at the time of redelivery at the current market price at the port of redelivery…

    Personal effects of the Master, officers and crew including slop chest, hired equipment, if any and the following listed items are excluded and shall be removed by the Charterers prior to or at the time of redelivery of the Vessel:

    • Hired equipment and subscriptions
    • Email equipment not part of GMDSS
    • Gas bottles
    • DNV or similar related bunker sampling equipment, if same is the property of the Charterers.
    • Videotel (or similar) film library
    • All training equipment, literature and visuals
    • All company items such as manuals, forms, house flag and items with the company logo
    • All software owned or installed by the Charterers including computers and printers
    • All historical data including PMS…

    54. INVENTORIES, OIL AND STORES

    A complete inventory of the Vessel’s entire equipment, outfit including spare parts, appliances and of all consumable stores on board the Vessel shall be made by the Charterers in conjunction with the Owners on delivery and again on redelivery of the Vessel.

    The Charterers and the Owners, respectively, shall at the time of delivery and redelivery take over and pay for all bunkers, lubricating oil, unbroached provisions, paints, ropes and other consumable stores (excluding spare parts) in the said Vessel at the then current market prices at the ports of delivery and redelivery, respectively. However, Charterers shall not pay to Owners at time of delivery for any bunkers, lubricating oil, provisions, paints, ropes and consumable stores which Charterers shall have supplied to the Vessel at Charterer’s expense prior to delivery.

    The Charterers shall ensure that all spare parts listed in the inventory and used during the Charter Period are replaced at their expense prior to redelivery of the Vessel.”

    The paragraph 14 claim

  24. The sub charterer’s paragraph 14 claim is helpfully summarised in the respondent’s skeleton argument as follows (I have interwoven in italics paragraph 14 items where no claim is made, and I have numbered the categories of articles for the sake of convenient reference). The claims have been converted where necessary from Norwegian currency to US dollars:
    0. Charts
    1. Navigation books 32,096
    2. Radio books (included in 1 above)
    3. Hose: Rubber hoses for fuel and gas oil and cargo hoses
    4. Owner’s flag
    5. Blankets and covers 4,922
    6. Table utensils and kitchen utensils 18,498
    7. Medicine and medical equipment (excluding those for use in lifeboat and liferaft) 12,277
    8. Ropes other than those specified in the Specifications 7,857
    9. Gymnasium equipment 3,389
    10. Business machines other than those specified in the Specifications 39,274
    11. Consumable stores 8,341
    12. Boiler water test kit 702
    13. Flexible or removable equipment and fittings not specified in the Specifications, which shall be required or recommended by OCIMF’s recommendation mentioned in Para 5

    25,348

    14. Carpenter’s tools 68,556
    15. Portable gas detector in excess of rule requirement 12,645
    16. Gas chromatograph, if fitted
    17. Muster list
    18. Shipboard oil pollution emergency plan 11,597
    19. Garbage management plan
    20. Garbage record book
    21. Training manuals required by SOLAS(included in 1 above)
    22. Cylinder lubricator system for main engine (Alpha system)
    23. All other spares, stores and equipment over and above the rule requirements and the Specifications 455,380
    24. Consumable liquids
  25. It will be observed that there is no claim in respect of charts, hoses, owner’s flag, gas chromatograph, muster list, garbage management plan, garbage record book, cylinder lubrication system, and consumable liquids. There are claims under the other headings. By far the largest claim is under the catch-all item 23 “All other spares” etc over and above the rule requirements and the specifications.
  26. A form of Scott’s schedule prepared by the sub charterer gives an insight into the nature of some of the claims. Thus under item 1 the claim is for publications and log books which are said to be SOLAS/IMO requirements. Under item 9, gymnasium equipment, mention is made of an “exercise bicycle etc”. Under item 10, business machines, there is reference to copiers, stamps for ship’s use and “office equipment/consumables”. This is the third largest item in financial terms. Under item 11, consumable stores, reference is made to “safety gear, clothing, goggles, harnesses” etc, said to be an ISM requirement. Item 14, carpenter’s tools, lists a variety of equipment including paint staging and equipment for external painting work and chain blocks. This is the second largest item in financial terms. Item 23, the catch-all item, lists a variety of matters from TV, DVD, CD and radio players, and various technical instruments, to signage said to be a SOLAS/OCIMF requirement. A large number of spare parts are also listed. There is no explanation of the matters not claimed. Many of the allegations as to matters being a requirement of SOLAS or some other convention or regulation are disputed. The judgment below
  27. In his judgment below, Burton J regarded the buyer’s apparent obligation under the building contract to supply owner’s paragraph 14 supply items as one that had to be understood by reference to article XVII. That article provided that if the buyer did not supply such items, then the vessel would be constructed without them but would still be constructed in accordance with the building contract’s specifications. Therefore there was no breach of the sub charter terms which required the vessel to be constructed in accordance with the building contract and its specifications. If it were otherwise, then the scope of most of the paragraph 14 items could only be identified by an implied term such as those suggested in the sub charterer’s pleadings. Such terms were uncertain in their nature and in the judge’s judgment “simply would not work”.
  28. To the extent, however, that any of the paragraph 14 items might also fall within paragraph 5, as articles whose absence would render the vessel unseaworthy, such as items 1, 2, 3 and 13, the cost of making good their non-supply would be recoverable by the sub charterer from the head charterer. In this connection the judge rejected the head charterer’s submission that even with respect to any overlap with paragraph 5, it was under no obligation for the absence of any relevant items. The buyer may have had no remedy against the builder for such items, because of the provisions of article XVII, but the sub charterer did not “stand in the shoes of” the buyer, as had been suggested. There was no obligation on the sub charterer to supply owner’s supplies. On the contrary, the head charterer promised in the sub charter that the vessel would be constructed in accordance with (inter alia) paragraph 5, and the sub charterer could rely on that promise. The sub charter could have provided otherwise, by express provision that the sub charterer should be responsible for owner’s or buyer’s supply. It did not do so, save in specific cases such as clause 33 (i) and (j) of the sub charter whereby the sub charterer was required to assume the obligation of the buyer in respect of the named items of supply, viz “fuel oil, lubricate oils and greases” etc.
  29. Subject to that paragraph 5 overlap exception, however, the range of paragraph 14 items strongly suggested that these were “optional” extras, which need not be installed unless the buyer (and behind it any operating owner) desired them and was willing to supply them. Where, however, it could be shown that paragraph 5 required the supply of any items in question (a matter which remained for further argument), the head charterer was liable for their absence.
  30. Thus the judge answered the preliminary issues (see at para 16 above) as follows: issues 1.1, 1.2, 2.3 and 2.4 were answered “No”, whereas issues 2.1 and 2.2 were answered “Yes, but subject to paragraph 5 of the Specifications”. The parties’ submissions
  31. On behalf of the sub charterer, Mr Philip Edey QC submitted that the judge was right about paragraph 5 items, but was wrong about paragraph 14. The sub charter promised that the vessel would be constructed in accordance with the building contract and its specifications, under which there was an obligation on the buyer to supply the paragraph 14 owner’s supplies. The language of paragraph 14 (and of articles II.1 and XVII.1 which also referred to such items) was mandatory. Thus paragraph 14 said: “The following articles shall be supplied by the Owner…”; article II.1 spoke of “the articles to be supplied by the BUYER as provided in Article XVII…”; and article XVII.1(a) stated that “The BUYER shall at its own risk, cost and expense, supply and deliver” the specified items (emphasis added). It did not matter that these items were buyer’s rather than builder’s responsibility: the sub charterer was entitled to a vessel built in accordance with the specifications irrespective of the identity of the party who was responsible for supplying them. Nor did it matter therefore that under article XVII the builder was excused responsibility to the buyer if the buyer had failed to meet its article XVII/paragraph 14 supply obligations.
  32. If it were otherwise, then the buyer, as owner under the head charter, could, by simply choosing not to supply the paragraph 14 items, render its bareboat charter less valuable, despite the bareboat hire being the all inclusive consideration for the promise of a vessel built to the building contract specifications. And if there was no remedy against the owner under the head charter, then the buyer would have no incentive to provide any of the paragraph 14 items.
  33. The importance of the paragraph 14 items was demonstrated by the fact that many of them were necessary to make the vessel seaworthy, and/or to comply with the rules and regulations of international conventions and the like (see paragraph 5). It could not have been the intention of the buyer or head charterer to deliver an unseaworthy vessel into either charter.
  34. As for the scope of the paragraph 14 items, to the extent that any of them needed further definition, it was implicit that what was referred to were “such items of the relevant description as would normally or in the ordinary course be placed on a newbuild LPG carrier to make her ready for immediate commercial use”. The necessary evidence could be supplied with the help of expert evidence. There was no vice in the fact that there might be an element of choice involved. The need to imply some such term where necessary was underlined by the fact that some at least of the paragraph 14 items were precisely specified, eg “Cylinder lubricator system for main engine (Alpha system)”.
  35. The very fact that the judge saw the need for the supply of paragraph 14 items which fell within paragraph 5 undermined his conclusion about paragraph 14 in general. This was because the basic point was that “Who as between the Buyer and the Builder was responsible for supplying that equipment in the first place was quite irrelevant: if it was listed in the specification, the vessel had to be equipped with it”.
  36. On behalf of the head charterer, on the other hand, Mr Michael Coburn submitted that the judge was right about paragraph 14, but wrong to say that the sub charterer did not stand in the shoes of the buyer and thus wrong about carving out an exception in respect of paragraph 5 obligations. As for paragraph 14, he sought to emphasise the disparate nature of the items listed in it, and suggested that it was significant that by far the largest item of claim was by reference to the catch-all item 23, which it was impossible to realise as a matter of obligation. Other items to which he drew attention were: those which spoke of supplies “other than those specified in the Specifications” (such as items 8, 10 and 15); an entirely optional item, described as “Gas chromatograph, if fitted” (item 16, for which there was no claim); other items which depended wholly or essentially on personal choice, such as table utensils or gymnasium equipment (items 6 and 9); and other items which depended entirely on who turned out to be the ultimate charterer and thus operator of the vessel, such as items 1 and 2 (navigation and radio books), item 4 (owner’s flag), and item 17 (muster list). In any event, the reference to owner’s supplies was in essence a reference to the operating owner. The buyer of a newbuilding to be let out on bareboat charter was typically, as here, a finance company, and the real driving force for matters of choice was the ultimate operating owner under a bareboat charter (see Goldrein, Ship Sale and Purchase, 3rd ed, 1998, at 275/6).
  37. Detailed submissions were made about other provisions in the building contract and charters, but the essence of the controversy was that the sub charterer emphasised that the vessel was promised to it as specified, whether the obligation under the building contract was that of the buyer or the builder, whereas the head charterer emphasised that owner’s supply items were not a strict matter of obligation under the building contract but categories of item which the operating owner would have to select and supply for itself. Discussion and decision
  38. The question at issue in this appeal has been treated as a matter of pure construction. No authorities have been cited as in any way relevant. The point appears to be entirely novel. It has been treated as a preliminary issue, without the benefit of evidence or expert evidence. Next to nothing is known about the circumstances in which the paragraph 14 list was compiled. It is not known why no claim has been made in respect of what appears likely to have been (at any rate financially) the single most important item, namely the cylinder lubricator system, item 22. Nothing is known as to why there has been no claim for other items. Nothing is known, other than some disputed allegations, as to whether any of the paragraph 14 items do in fact fall within para 5. Nothing is known in general about the interrelationship of paragraphs 5 and 14, or their opportunity for any overlap. Nothing is known as to why the specification covers certain items, for instance certain spares or ropes which are specified here and there throughout the specifications, but not other articles which might possibly be said to fall within the same category but are left to appear as a general item in paragraph 14 accompanied by the phrase “other than those specified in the Specifications” or “over and above the rule requirements and the Specifications”. Nothing is known by way of background to inform the court as to whether it would be easy, difficult or impossible to speak in terms of what was standard or normal on a newbuild LPG carrier in the way of table utensils, gymnasium equipment, business machines, entertainment machines, carpenter’s tools, additional spare parts and so on. It may be that it is possible to speak of certain articles constituting a necessary minimum. It may be, on the other hand, that such matters are like a piece of string, which can come in any length. It is not clear to what extent it is necessary or usual to consult with an operating owner in order to settle such needs. In that connection, the owner’s flag appears to depend totally on the ultimate operating owner itself. It seems odd that this should be supplied by anyone else than, in this case, the sub charterer itself. Other matters may depend on the language in which books and other listed articles are written. Nothing is known about the circumstances in which the paragraph 14 items may have been disputed upon delivery. I regret this absence of context.
  39. Above all the many disparate points which have been argued and could be made, however, there is one matter which, although not the exclusive reason for my decision, seems to me in these somewhat artificial circumstances to be of particular importance in guiding me to a conclusion. It is that nothing in the provisions of the sub charter expressly requires the head charterer to provide the paragraph 14 items. It may be true (but see under para 46 below) that the building contract appears to require the buyer to supply the owner’s supplies listed in paragraph 14. However, the sub charter only requires that the vessel “shall be constructed in accordance with the Building Contract…and in accordance with the specifications” (Part III clause 1(a)) or “shall be built as described in the Head Bare Boat Charter Party (Part III, clause 33(b)), or “built in accordance with the terms of the Head Bare Boat Charter Party” (clause 33(d)). How is one to know whether those promises have been made good or not? In my judgment, that can only be answered by knowing whether the vessel delivered under the building contract, and thus at one and the same time delivered under the head and sub charters (see their clause 33(c)), has amounted to a good delivery under the building contract of a vessel constructed in accordance with that contract. That seems to me to be a proposition generally likely to be correct, but it is emphasised specifically in connection with the paragraph 14 items by article XVII of the building contract, being the leading term in the building contract itself which deals with items of buyer’s or owner’s supply.
  40. Thus article XVII emphasises that if the buyer does not supply the paragraph 14 items to the builder, then there is no need for the vessel to contain them upon delivery, for the builder “shall be entitled to proceed with construction of the VESSEL without installation thereof in or on the Vessel…and the BUYER shall accept and take delivery of the VESSEL so constructed.” It follows that the vessel constructed and delivered without any paragraph 14 items which the buyer has failed to supply is a vessel constructed and delivered in accordance with the building contract and its specifications. If that is so under the building contract, which it seems to me is plainly so, then it follows that that is equally true under each of the bareboat charters. I do not see how a vessel constructed and delivered in accordance with the building contract and its specifications can be a vessel which has, for the purposes of the bareboat charters, been a vessel which has not been constructed and delivered in accordance with the building contract and its specifications. Article XVII has a status in dealing with paragraph 14 items beyond that of paragraph 14 itself. That is not only because it is part of the main contract, but also because article XX.2 of that contract (“Discrepancies”) provides:

    “All general language or requirements embodied in the Specifications are intended to amplify, explain and implement the requirements of this Contract. However, in the event that any language or requirements so embodied permit of an interpretation inconsistent with any provisions of this Contract, then, in each and every such event, the applicable provisions of this Contract shall prevail and govern.”

  41. The fact that delivery of the vessel under the building contract and the charters respectively is the same delivery (where the condition of the vessel is concerned) is emphasised throughout the charters, and not only in the clauses cited immediately above. Thus, “Subject to the Vessel having been constructed in accordance with the Building Contract” and having completed her acceptance trial in accordance with the building contract, the charterers are obliged to take delivery (clause 33(c) of the charters). And “Provided the Vessel has been built in accordance with the terms of the Building Contract” (clause 33(d) of the head charter) and “Provided the Vessel has been built in accordance with the terms of the Head Bare Boat Charter Party” (clause 33(d) of the sub charter), the respective head and sub charterers “shall not be entitled to refuse acceptance of delivery of the Vessel under this Charter” (ibid). Moreover, upon such delivery, the charterers are respectively left to their remedies under the building contract (by way of assignment, see clause 32(a) of the respective charters), and can have no claim whatsoever against their respective owners: see clause 33(d) of the charters, with its strong language, viz –

    “Upon and after acceptance of the Vessel by the Charterers, the Charterers shall not be entitled to make any claim against the Owners in respect of any conditions, representations or warranties whether express or implied as to the condition of the Vessel, the seaworthiness of the Vessel or in respect of delay in delivery or otherwise howsoever.”

  42. Thus each charterer is remitted to remedies under the building contract against the builder for anything that has gone wrong in the building of the vessel as required by the building contract (including its specifications), and the charters leave no room for any claim under the charters against the owners in respect of the condition of the vessel as built and delivered.
  43. It would therefore be extraordinary if, where there is no claim under the building contract against the builder, there would nevertheless be a claim under the head or sub charters against the chartering owners in respect of a complaint that the vessel as constructed and delivered had not been constructed in accordance with the building contract or its specifications.
  44. During the course of argument this point was put to Mr Edey specifically. His response was simply that the vessel had been delivered and accepted “without prejudice”. Whatever that means, however, it cannot create rights or remedies where the contracts do not provide for them.
  45. Mr Edey nevertheless submits that the failure of the buyer to supply paragraph 14 items to the builder, and the builder’s consequent freedom from any responsibility with respect to such non-supplied items, are simply matters between buyer and builder. It still remains a matter of obligation under the charters that the buyer “shall” supply the items in question under the building contract. I fail to see this. If there is no obligation under the building contract, I cannot ultimately see how there can be a matter of obligation under the charters, when the charter obligation is defined in terms of a vessel constructed in accordance with the building contract.
  46. In any event, and this would be a second important point, I agree with the judge that properly understood the “shall” language (and its equivalent) in the building contract is not the language of strict obligation. The point is that, as between the buyer and the builder, the paragraph 14 items are the responsibility in terms of supply and cost of the buyer rather than the builder. However, if the items are not supplied, there is no remedy and the items simply fall away. The only remedy needed is if the items are supplied late (“Should the BUYER fail to deliver any of the BUYER’s supplies within the time designated”, article XVII.1(d)) and thus cause difficulty or delay in the construction of the vessel. (The contract thus contemplates that arrangements will be made outside the contract further to designate the identity of any items required and to lay down a time-table for their supply. As paragraph 14 states: “The Owner shall inform the Builder of items, quantity, size, etc at an early stage of the design.”) In such a case of delay, an express indemnity is given to the builder. Provision had to be made for such items because the builder undertakes responsibility to store, handle and install them, and because it has to be made clear nevertheless that the responsibility to supply and pay for them rests on the buyer and not the builder; also because the buyer could delay the construction by mismanaging their supply. Nevertheless, the ultimate effect of these provisions is that “These are the terms on which the buyer’s supply items, as listed in paragraph 14, are to be managed, to the extent that the buyer requires and supplies them. The buyer shall supply them on these terms. To the extent that it requires them, it shall supply and deliver them to the builder “at its own risk, cost and expense”.” That this is the true effect of such items is also suggested by the presence of language throughout paragraph 14 such as “other than those specified in the Specifications”; and by the general vagueness of much of the language, especially item 23′s “All other spares, stores and equipment over and above the rule requirements and the Specifications”. This is very much the language of choice, not of obligation. The parties contract: that to the extent that the buyer wants such matters installed, it must arrange to supply them at its cost.
  47. Thirdly, I also agree with the judge that the absence of obligation is supported by the difficulty of finding an implied term which would identify the items in question. It is certainly true that that is certain which can be rendered certain (certum est quod certum fieri potest) and that a court would strive to make sense of a provision in a subsisting contract if it were necessary to make the contract work. In the present case, however, there is no need to strive to find some language of implied definition, especially when the court does not even have the means of knowing whether it is possible sensibly to speak of the normal or standard equipment reasonably to be expected to be installed on a newbuild LPG carrier. Mr Edey submits that it is nevertheless necessary to imply some such language to prevent the buyer profiting by failing to supply paragraph 14 items for installation on the vessel when he charters her for a hire which it is assumed is premised on costs which include the cost of those items. That submission, however, begs a number of questions. First, it assumes that there is a strict obligation on the buyer to supply the items in question under the building contract. Secondly, it assumes that there was an obligation on each disponent owner under its charter to ensure that the vessel was constructed and delivered with the paragraph 14 items installed on the vessel. Thirdly it assumes that the price of the vessel in terms of its hire under each charter was premised on the cost of a vessel which did contain the items in question, even when it was unknown what if any such items would be installed. It seems to me that the sub charterer was not entitled to make any such assumptions in its favour.
  48. Fourthly, there is a special problem which arises from the fact that the sub charterer alleges that some at least of the paragraph 14 items are also required under paragraph 5. Whether that is so or not at this stage remains entirely a matter of allegation and conjecture (although the judge was inclined to think that at any rate items 1, 2, 3 and 13 raised that possibility: see para 16 of his judgment). All that one can say at this moment is that in principle that should not be the case. That is because paragraph 5 items are the builder’s responsibility and paragraph 14 items are the buyer’s responsibility. It makes no sense whatsoever therefore for there to be any overlap. If, nevertheless, there were to be an overlap, there would have to be a resolution of the issue whether the item in question fell under paragraph 5 or paragraph 14. There are in theory two possible solutions. One is to say that, whether or not the item in question is excused on the basis of its being listed within paragraph 14, its presence within paragraph 5 should entail that the builder and therefore each disponent owner would be in any event liable under its respective contract if the vessel was delivered without the item in question (subject to the owner’s exemption under clause 33(d) of each charter). The other is to say that if there was no liability for the non-supply of any specific item within paragraph 14, then there could be no liability for it just because it also fell within paragraph 5. In a mysterious and uncertain situation, I would on balance prefer the latter choice, for three reasons. I assume an item falls under both paragraphs and has not been installed on the vessel when delivered. First, if the item had been supplied, its cost would have fallen on the buyer, not the builder, under paragraph 14. It hardly makes sense that if the item is not supplied, its cost falls on the builder not the buyer, under paragraph 5. Secondly, it seems to me that, vague as some of its items are, paragraph 14 is more specific than paragraph 5. Therefore, if there is any overlap, paragraph 5 should make way for paragraph 14. The general has to make way for the special. Thirdly, that is what is said in paragraph 1 of the Hull specification:

    “Anything not mentioned in the Specifications but required by the rules and regulations described in Para. 5 Classification, Rule and regulation of this Part, shall be supplied and/or equipped by the Builder except the Owner’s supply articles” [emphasis added].

    That provision seems to me to be ultimately definitive of the question: but I have put it third of my three reasons to explain the logic of the situation.

  49. There was a dispute as to whether the paragraph 5 exception dealt with by the judge below was a matter of concession, or whether it was conceded only that paragraph 5 potentially raised a specific problem. It is unnecessary to resolve that issue. Any concession was only one of law, and there is no unfairness in revisiting the issue, which is specifically raised under a respondent’s notice.
  50. Fifthly, there are other provisions of the sub charter which tend to support the conclusion to which these arguments lead me.
  51. (i) Clause 44 grants the sub charterer specific permission to paint the vessel in its own colours and to “fly their own house flag”. That makes sense where the buyer supplies to the builder an owner’s flag if that is provided to him by the operator, but otherwise is under no obligation under the charter to supply such a flag. It makes no sense where the operator may claim against the head charterer because the buyer has not supplied the builder with a flag. It is true that the sub charterer makes no claim in these proceedings for item 4, owner’s flag. But the point tests the logic of its overall approach to paragraph 14.
  52. (ii) Spare parts are the subject matter of paragraph 14′s item 23 (“All other spares, stores and equipment over and above the rule requirements and the Specifications”) and also clauses 39, 47 and 54 of the sub charter (and equivalent provisions in the head charter). Spare parts delivered with the vessel are part of its inventory. An inventory of the vessel’s entire equipment, including spare parts, is to be taken by the parties on delivery and again on redelivery. If spare parts are present on delivery (ie have been supplied by the builder under its specifications or by the buyer under paragraph 14), they will be listed in the inventory taken on delivery. If any of such spares is used during the charter, then at latest upon redelivery the charterer has to replace that spare at its own expense. Thus use of a spare is at the charterer’s expense; but the owner bears the cash flow expense of providing for any spare present on delivery. However, the charterer is at liberty to add to the vessel’s equipment, and if it does so, it can remove such equipment, which might include spares, at redelivery (clause 39). In such circumstances, it hardly seems necessary to insist on some indefinite list of spares, in addition to those specified in the specifications, to be supplied by the buyer for the purposes of paragraph 14. It can, if it wishes, supply such spares. If requested by an operator to do so prior to delivery, it can consent to do so, and can bring such spares within the building contract under paragraph 14. However, the cost is likely to be negotiated between buyer and operator: either the buyer will bear the cost and recover it in the form of hire; or the operator will bear the cost, and be permitted to treat such spares as its own equipment.
  53. (iii) Consumables are also the subject matter of paragraph 14 (see items 3, 8, 11, 23 and 24). They are also dealt with in clauses 47 and 54 of the charters. At delivery the charterer and at redelivery the owner take over and pay for all such consumables (clause 54 refers to “bunkers, lubricating oil, unbroached provisions, paints, ropes and other consumable stores (excluding spare parts))”, but not to the extent that the charterer had already supplied such items to the vessel at its own expense prior to delivery. Here again it seems unnecessary to view the provision of such consumables as being a matter of obligation on the buyer under the building contract. The charterer itself may supply such items, as the charter expressly contemplates. To the extent that the buyer/owner supplies them and delivers them with the vessel, they have to be paid for by the charterer in any event. It is simply inaccurate to suggest that they are something which the charterer has paid for in the form of hire but does not obtain because of some breach by the owner in dealing with owner’s supplies.
  54. (iv) The building contract makes special provision in article VI for the fuel cost of the contract trials. Thus article VI.1(c)(ii) provides that the buyer shall supply the “fuel oil, lubricating oils and greases necessary for the trial run”, even though the builder is to pay for the cost of such items consumed during the trial run. Paragraph 14 reflects this special provision (“Consumable liquid*…*Those which will be consumed in tests and trials shall be borne by the Builder”), but the special provision lies outside paragraph 14. The importance of it is that the buyer’s obligation to supply the fuel etc for the trial run is not simply a matter of the buyer’s choice of what it will supply as part of owner’s supplies, but a necessary obligation. It is probably for this reason that the charters also make special provision for this matter in Part III clause 33(i), by reference to article VI.1(c)(ii) of the building contract. Although the judge (albeit on a separate part of the argument) considered that this was of some significance, I would simply see it as reflecting the need for passing on to the charterer the buyer’s obligation of supply under the building contract. The fact that a similar obligation is not passed on to the charterer in terms of paragraph 14 supplies is entirely consistent with my view that this is not a true obligation. Conclusion
  55. For these reasons I would dismiss this appeal and allow the head charterer’s cross-appeal in respect of the judge’s paragraph 5 exception. I would therefore answer issues 1.1, 1.2, 2.3 and 2.4 each “No”, as the judge did.
  56. We are invited by the cross-appeal to answer issue 2.1 simply “Yes”, deleting the judge’s “but subject to paragraph 5 of the Specifications”. We are also invited to answer issue 2.2 simply “No”, whereas the judge answered it “Yes, but subject to paragraph 5 of the Specifications”. I would be willing to delete the judge’s proviso in respect of paragraph 5. The issue 2.1 question is: “2. Was the Buyer and/or Defendant only obliged to supply such of the Buyer’s supplies…as it chose to supply?” I would prefer to answer this question by saying: “The Defendant was not obliged to supply the Buyer’s supplies as alleged, and was not in breach of its charter by failing to provide such supplies”.
  57. The issue 2.2 question is: “2. Was the Buyer and/or the Defendant only obliged to supply such of the Buyer’s Supplies…as were required to make the Vessel seaworthy for her acceptance trials, together with such further items as it chose to supply?” I would prefer to answer this question by saying: “The Defendant was not obliged to make the Vessel seaworthy for her acceptance trials, nor to provide the Buyer’s supplies as alleged, and was not in breach of its charter by failing to provide such supplies.” However, because these answers were not specifically discussed during the hearing of the appeal, and in particular the question of the acceptance trials was not discussed, I would ask the parties to address to us (in writing) any further submissions they consider necessary, if they submit that these questions should, in the light of this judgment, be answered otherwise than I have provisionally suggested they should be.[1]Lord Justice Wilson :
  58. I agree. Sir Scott Baker :
  59. I also agree.

Note 1   There were no further submissions, and an order was agreed in the terms stated above.

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