What if a ship underperforms in relation to any speed and consumption warranties that have been given by a ship owner ahead of charter? Often the charterer may well have a strong claim for damages or other contractual remedy. However the recent case of SK Shipping Europe PLC v (3) Capital VLCC (2020) – an English High Court decision that will have persuasive authority in the Bahamas – demonstrates that things are not always clear-cut. As we’ll see below the shipowner in the case succeeded in a claim for damages against a charterer. The charterer had sought to extricate itself from a charterparty on the basis that the owner’s warranty in relation to speed and consumption was a fraudulent misrepresentation.
The award-winning commercial lawyers at Bahamas law firm ParrisWhittaker offer specialist advice on commercial contracts. This includes advice to owners and charterers on all aspects of charterparties.
SK Shipping Europe PLC v (3) Capital VLCC: The Facts
SK Shipping are the owners of a large crude carrier, the “C CHALLENGER”. In November 2016 they were looking to find a long-term charterer for the vessel. Commencing the search for a suitable party, they sent an open letter to the wider charter market detailing the vessel’s speed and consumption capabilities. Two months later Capital VLCC agreed to charter the vessel. The charterparty contained a standard form of wording in relation to consumption capabilities.
From February 2017 (when the charter began) the vessel consistently used up more fuel than had been suggested in the letter of November 2016. Almost immediately Capital VLCC began to complain that there had been a misrepresentation in relation to fuel consumption – although it continued to use the vessel right through until September 2017. At that point, after one voyage had used up a significantly greater amount of fuel than previous trips, Capital VLCC sought to terminate the contract. SK Shipping then issued legal proceedings for breach of the charter contract. Capital VLCC in turn counter claimed on the basis that SK Shipping had fraudulently misrepresented the ship’s fuel usage.
Was There Misrepresentation?
If Capital VLCC could establish before the court that SK Shipping had misrepresented the vessel’s speed and consumption capability it would be able to rescind the contract.
Capital’s claim for misrepresentation centred on the nature of the open letter to those in the charter market sent by SK Shipping in November 2016 when it was seeking a charterer for C CHALLENGER. SK Shipping contended that the statements in the letter weren’t representations about C CHALLENGER’S actual performance. The charterers on the other hand claimed that the representations
were either dishonest or negligent.
In the event the judge was not persuaded that the letter amounted to a contractual representation. It was not, as argued by Capital VLCC, confirmation by the owner that it expected “C CHALLENGER” in future to achieve substantially the same performance as mentioned in the letter. The mere offer of a speed and consumption warranty, and in particular of a continuing warranty, should not, ruled the judge, of itself be held to involve an implicit representation as to a vessel’s current or recent performance.
Advising On Speed and Consumption Warranties
In SK Shipping it emerged that it was the first time the owners had been required to offer a speed and consumption warranty (previously they had chartered the vessel without giving an indication of speed and consumption). They did not use established templates but assembled their warranty letter from a set of four speed and data spreadsheets. Inevitably the legal interpretation of such a document would prove tricky. We have no way of knowing the nature of the advice Capital VLCC obtained before entering the charterparty. But an experienced shipping lawyer acting for a charterer would be expected to have alerted its client to issues such as how precisely consumption was calculated, what the warranty assumed about weather conditions, whether the condition of the vessel and deterioration were factored in, and to what extent did the warranty rely in specialist skills of captain and crew.
Comment
The issues raised in SK Shipping Europe might at first appear to be highly technical contractual matters relevant to only a handful of cases. We don’t believe that’s the case. Aside from the clarification of the legal nature of speed and consumption warranties (which many of our clients must assess on a regular basis), the case more generally highlights the importance of always ensuring you are clear about the nature of what you are being offered and what your legal obligations are when you enter a commercial contract. Often you’ll need to get specialist advice.
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