Court upholds owner’s appeal in domestic fuel consumption dispute under charterparty

Summit Investment Inc British Steel Corporation (The “Sounion ”)

Much costly litigation has followed upon charterers and shipowners failing to see eye-to-eye over the meaning or interpretation to be placed on a mere one or two words in one of many clauses in a charterparty containing a multiplicity of terms and conditions relevant to the contract. It might be said that such situations have existed since the birth of the “charta partita”, from which the present-day charterparty developed, and will no doubt continue to exist in the foreseeable future. Whilst such litigation is a costly business for the litigants, the end-product is of great value to commercial people in the field of seaborne commerce and marine insurance and to maritime lawyers in general, as each successive case before the courts will contribute to a further understanding of charterparty terms and conditions and will eradicate the need for further litigation on such issues over similar disputes in the future.

This present case has more than a passing interest in that the time-charter involved in the dispute was drawn up in the days when “grates” and “stoves” were the order of the day on certain ships, and in fact this litigation involved a dispute between shipowner and charterer over the meaning and intent of those words. The charterparty here concerned was a time-charter in the New York Produce Exchange form dated November 22, 1977, and subsequently extended. The dispute arose out of Clause 20 which provided that, “Fuel used by the vessel while off hire, also for cooking, condensing water, or for grates and stoves to be agreed as to quantity, and the cost of replacing same, to be allowed by the owners.”

One of the matters in dispute under this charterparty was a counterclaim by the charterer for $70,437.50 for the cost of diesel oil used for domestic consumption, the claim arising under the above clause. The owner disputed the claim in part, pointing to the diesel oil which had been consumed in the cooking equipment in the galley which it conceded fell within the clause. The dispute went to arbitration but the arbitrators were divided on this issue, a majority holding in favour of the charterer’s contention that Clause 20 extended to all diesel use for domestic consumption by the officers and crew. The dissenting arbitrator held that the words covered, in addition to diesel used in cooking which was an express use set out in the clause, diesel oil used for heating the officers’ and crews’ accommodation under the words “for grates and stoves”, on the basis that grates and stoves no longer exist in ships and that one should therefore include heating now supplied by diesel which would formerly have been supplied by open or enclosed fires, ie “grates” or “stoves”.

Leave to appeal from the majority decision was granted by the High Court on the application of the owner of the vessel, and the issue came before Mr Justice Gatehouse in the Queen’s Bench Division, Commercial Court, the question to be decided being the ambit, in present day conditions, of Clause 20. The owner took the view that this clause had to be construed as it stood, subject only to reading “grates and stoves” as “central heating installation”. This clause, it was argued, was not directed to dealing solely with “domestic” matters but dealt with fuel used by the vessel while off-hire and also the provision of condensing water, ie for boiler feed to heat the bunker coils so as to keep the fuel at a pumpable temperature.

Such then is merely a synopsis of the arguments put forward by the owner. For the charterer it was argued that all three arbitrators had agreed that it was necessary to give a commercial purpose to these anachronistic words “grates” and “stoves”. Three approaches were suggested; the first was that the factual matrix of the time charterparty, read as a whole, meant that the scheme of the charterparty was that the charterer was to pay for those items which arose out of the way that it chose to trade the vessel, while the owner paid all other charges in practice those relevant to the crew which it would have to pay whether or not the vessel was chartered out. Secondly, there was the historical approach, it being said that by seeing what a phrase meant in former times you received guidance as to its meaning today. Thirdly, the charterer supported the majority decision on the basis of what was called “good commonsense.”

The arguments for and against the submissions of the court are too lengthy to be included in full in these notes and it must suffice to provide a brief summary of the finding in this case, which was that the dissenting arbitrator’s approach was the correct one in law, and that the words “domestic consumption” in Clause 20 covered in addition to diesel used in cooking, diesel oil used for heating the officers’ and crews’ accommodation under the words “grates” and “stoves”. The court said that to construe the clause as referring to the supply of heating for the crew was to give a modern substitute for the words “grates” and “stoves”, and the court allowed the appeal of the owner of the vessel, Summit Investment Inc.

Case № 11