Shipping Contracts: Interpreting the Terms

Shipping Contracts: Interpreting the Terms

The Supreme Court in the UK has recently considered a case1 which demonstrates the complexities that can arise from the interpretation of a contract. The judges examined the extent to which parties have the contractual power to form an opinion, and affirmed the need for decisions by contractual fact-finders to be reasonable.

The case involved the disappearance of an employee on the respondents’ vessel. Mr. Braganza had vanished while on board, and the vessel owners believed he had committed suicide. Under the terms of his contract, no benefits were due to the widow in the event of a suicide. Tragically, Mr. Braganza was never found.

Claims Against Employer

His widow brought a contractual claim against the employer (BP) for death in service benefits, and a claim in negligence under the Fatal Accidents Act 1976 and the Law Reform (Miscellaneous Provisions) Act 1934.

In the first instance in the Commercial Courts, the judge held that there was a genuine uncertainty as to what had befallen Mr. Braganza: whilst there may have been a suicide, it was equally possible that he had met with an accident. The respondents had therefore not been reasonable in their opinion that he had committed suicide, because they had not taken into account the possibility of an accident. Death in service benefits were therefore contractually due to the widow.

The decision was overturned on appeal. The Court of Appeal judges held that the respondents had been reasonable in their assumption of suicide, since there had been no mechanism presented for how he might have fallen overboard.

The Supreme Court Ruling

At the Supreme Court, the widow’s appeal was allowed. A key issue for the judges was that where a contract involved one party making a decision which would affect the rights of both parties, it was necessary for the decision to be lawful and rational – that is, made in good faith, and consistent with the contractual purpose.

In deciding that Mr. Braganza had committed suicide, the decision maker had not
acted rationally or reasonably, since they had not taken into account the inherent improbability of suicide (and that there had been no indications of suicide.)

How Can We Help?

This case should alert contracting parties to the need to ensure that where there is a contractual power to form an opinion, or to make decisions affecting both parties, both the opinion and the decision must be reasonable.

At ParrisWhittaker, we understand that grasping the legal implications of these cases, and understanding their role in your day-to-day business, can seem a demanding and difficult task. We are ready to work with you, bringing our years of expertise in these matters to ensure you and your business thrive, and do not fall foul of legal obligations implicit in a contract.

If you need swift, incisive legal advice on this or any other matter, contact ParrisWhittaker now, and we can start acting on your behalf.

1 Braganza (Appellant) v BP Shipping Limited