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All England Law Reports/1983/Volume 2 /Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana; The Scaptrade - [1983] 2 All ER 763 [1983] 2 All ER 763

Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana; The Scaptrade

HOUSE OF LORDS LORD DIPLOCK, LORD KEITH OF KINKEL, LORD SCARMAN, LORD ROSKILL AND LORD BRIDGE OF HARWICH 11 MAY, 30 JUNE 1983 Shipping - Charterparty - Time charter - Withdrawal - Relief against forfeiture - Default in payment of hire Right of withdrawal exercised - Whether court having jurisdiction to grant relief against forfeiture. By a time charter in the Shelltime 3 form the owners chartered a vessel to the charterers for a specified period which was later extended to three years. Payments of hire under the charter were to be made monthly in advance. The charter also provided that if the charterers defaulted in paying the monthly hire instalment by the due date the owners could withdraw the vessel from hire. In July 1979, when the charter had still a year to run, the charterers failed to pay the instalment due on 8 July. On 12 July, the instalment still being upaid, the owners gave notice to the charterers withdrawing the vessel. Tender of the overdue hire was made on the following day but was refused. The parties agreed that the vessel should continue in the service of the charterers while the question whether the owners were entitled to withdraw the vessel was litigated. It was further agreed that, if the court found in favour of the owners, the charterers would pay, from the date of the recharter, hire at the increased market rate rather than at the original contract rate. The owners sought and were granted a declaration that they were entitled to withdraw the vessel for non-payment of hire. The charterers appealed to the Court of Appeal contending, inter alia, that the court had jurisdiction to grant, in appropriate circumstances, the equitable remedy of relief against forfeiture in order to relieve charterers from the consequences of withdrawal for non-payment of hire, and that it would be proper in the circumstances to grant them such discretionary relief. The Court of Appeal dismissed the appeal, holding that the court had no jurisdiction to grant the equitable remedy of relief against forfeiture in such circumstances. The charterers appealed to the House of Lords. Held - A time charter, unless it was a charter by demise, transferred to the charterer no interest in, or right to possession of, the vessel but was merely a contract for services to be rendered to the charterer by the shipowner through the use of the vessel by the shipowner's own servants (the master and the crew) acting in accordance with such directions as to cargo to be loaded and the voyage to be undertaken as the charterer was entitled to give them under the terms of the charterparty. Since an injunction restraining a shipowner from exercising his right of withdrawal of the vessel, though negative in form, was in effect an affirmative order to the shipowner to perform the contract, it was juristically indistinguishable from a decree for specific performance of a contract to render services, which the court had no jurisdiction to order. It followed that the court had no jurisdiction to grant relief against forfeiture to relieve a time charterer from the consequences of withdrawal of the chartered vessel by the shipowner following non-payment of hire instalments. Furthermore, where the parties bargained on equal terms and made time of the essence for the performance of the primary obligation to pay hire instalments on time, the charterer's failure to perorm that obligation punctually would amount to a breach of a condition of the contract which would entitle the owners to elect to treat the breach as putting an end to all primary obligations under the contract which [1983] 2 All ER 763 at 764

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had not already been performed. Accordingly the appeal would be dismissed (see p 766 e to p 767 a, p 768 c to j and p 769 e to j, post). Dictum of Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] 1 All ER at 100 distinguished. Dictum of Lloyd J in Afovos Shipping Co AS v R Pagnan & Flli, The Afovos [1980] 2 Lloyd's Rep 476-480 disapproved. Dictum of Lord Simon in Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia, The Laconia [1977] 1 All ER at 553 doubted. Decision of Court of Appeal [1983] 1 All ER 301 affirmed. Notes For relief against forfeiture, see 16 Halsbury's Laws (4th edn) paras 1447-1451, and for cases on the subject, see 20 Digest (Reissue) 898-899, 6695-6703. Cases referred to in opinions Afovos Shipping Co AS v R Pagnan & Flli, The Afovos [1980] 2 Lloyd's Rep 469; rvsd [1982] 3 All ER 18, [1982] 1 WLR 848, CA. A/S Awilco v Fulvia SpA di Navigazione, The Chikuma [1981] 1 All ER 652, [1981] 1 WLR 314, HL. Clarke v Price (1819) 2 Wils Ch 157, 37 ER 270, LC. Lumley v Wagner (1852) 1 De GM & G 604, [1843-60] All ER Rep 368, 42 ER 687, LC. Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia, The Laconia [1977] 1 All ER 545, [1977] AC 850, [1977] 2 WLR 286, HL. Shiloh Spinners Ltd v Harding [1973] 1 All ER 90, [1973] AC 691, [1973] 2 WLR 28, HL. Stockloser v Johnson [1954] 1 All ER 630, [1954] 1 QB 476, [1954] 2 WLR 439, CA. Tankexpress A/S v Compagnie Financiagere Belge des Petroles SA [1948] 2 All ER 939, [1949] AC 76, HL. Appeal The defendants, Flota Petrolera Ecuatoriana (the charterers), appealed with leave of the Appeal Committee of the House of Lords granted on 20 January 1983 against the order of the Court of Appeal (Sir John Donaldson MR, May and Robert Goff LJJ) ([1983] 1 All ER 301, [1983] 2 WLR 248) dated 26 November 1982 dismissing the appeal of the charterers from the order of Lloyd J

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dated 3 July 1981 whereby it was directed that judgment should be entered for the plaintiffs, Scandinavian Trading Tanker Co AB (the owners), in an action commenced by writ issued on 27 February 1980. The facts are set out in the opinion of Lord Diplock. Johan Steyn QC and A G Bompas for the charterers. Kenneth Rokison QC and Timothy Saloman for the owners. Their Lordships took time for consideration 30 June 1983. The following judgments were delivered.

LORD DIPLOCK. My Lords, in this appeal between the appellant (the charterers) and the respondent (the owners) of the tanker Scaptrade, your Lordships have heard argument on one question only: has the High Court any jurisdiction to grant relief against the exercise by a shipowner of his contractual right, under the withdrawal clause in a time charter, to withdraw the vessel from the service of the charterer on the latter's failure to make payment of an instalment of the hire in the manner and at a time that is not later than that for which the withdrawal clause provides? I call this the jurisdiction point. Since, at the conclusion of the argument on the jurisdiction point your Lordships were unanimously of opinion that there is no such jurisdiction, it became unnecessary to consider whether Lloyd J, who tried the case at first instance in the Commercial Court [1983] 2 All ER 763 at 765 and was willing to assume that he did have jurisdiction to grant relief in his discretion, exercised that discretion in a manner that was erroneous in law when he refused to grant relief to the charterers. I call this the discretion point. The time charter concerned was on the standard printed 'Shelltime 3' form with typed additions that are not material to the question that your Lordships have to decide. This form of charterparty is expressed to be governed by the law of England, and to be subject to the jurisdiction of the English court. The relevant wording of the payment of hire clause, which, as is usual in most standard forms of time charter, incorporated the withdrawal clause was:

'Payment of the said hire shall be made in New York monthly in advance ... In default of such payment Owners may withdraw the vessel from the service of Charterers, without prejudice to any claim Owners may otherwise have on Charterers under this charter.'

The charter had become by extension a three-year charter. In July 1979 when it had still a year to run the freight market was rising steeply. The charterers were unfortunate enough, through some slip-up in their own office, to fail to pay on 8 July 1979 the instalment of hire due on that date. Four days later, on 12 July, the owners gave notice to the charterers withdrawing the vessel. Tender of the overdue hire was made on the following day but was refused. After negotiations had taken place, the vessel was rechartered by the owners to the charterers on a 'without prejudice' agreement of the usual kind, the rate of hire (ie charter rate or market rate) to abide the result of litigation, which in the event, came before Lloyd J.

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My Lords, the jurisdiction point which your Lordships have to decide is a compact one. In order to deal with it I see no need to mention any more facts than those that I have now stated, although there were other issues that were canvassed at the trial, some of which were canvassed again in the Court of Appeal. That being so, I should like to say how helpful I have found both the typewritten summary of the propositions intended to be developed, and the chronological table of relevant events, that leading counsel for the charterers handed in at the beginning of his oral argument. This response to suggestions that have recently been made in this House has shown how useful it can be in shortening the time needed for the hearing and in concentrating the attention of your Lordships (and of counsel) on those points that are essential to the argument that is being presented. Lloyd J adopted the course that he had previously adopted in Afovos Shipping Co AS v R Pagnan & Flli, The Afovos [1980] 2 Lloyd's Rep 469. He assumed that the jurisdiction point could be decided in the charterers' favour but on the particular facts he decided against them on the discretion point. The charterers appealed to the Court of Appeal. The Court of Appeal, while expressing doubt as to the adequacy in law of the judge's reasons for refusing to grant relief in the circumstances of the case, if there were vested in him a discretion to grant it, decided against the charterers on the jurisdiction point, and dismissed their appeal (see [1982] 3 All ER 18, [1982] 1 WLR 848). My Lords, the judgment of the Court of Appeal, delivered by Robert Goff LJ, on the jurisdiction point was the first direct decision by any English court, given after hearing argument, on the question that I have set out at the beginning of this speech. For reasons admirably expressed, and which, for my part, I find convincing, the Court of Appeal held that there was no such jurisdiction (see [1983] 1 All ER 301, [1983] 2 WLR 248). The argument that there was jurisdiction in the court to grant relief against the withdrawal of the vessel from the charterer's service for default in punctual payment of an instalment of hire pursuant to the terms of the withdrawal clause in a time charter could, however, be supported by certain obiter dicta to be found in speeches in this House, in particular that of Lord Simon in Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia, The Laconia [1977] 1 All ER 545 at 553, [1977] AC 850 at 873-874. Since such large sums of money may be at stake when rights to withdraw a vessel under a time charter are exercised at a time of rising freight rates (which, except where insolvency of the charterer is feared, is normally the only time when such rights are exercised), it seemed desirable [1983] 2 All ER 763 at 766 to the Appeal Committee of this House that leave to appeal should be granted to the charterers, not, I must confess, with any great expectation that fuller consideration would show that on the jurisdiction point the Court of Appeal had got it wrong, but in order that a matter of such practical importance to the shipping world should, by a decision of the highest appellate court, be put beyond reach of future challenge. Apart from a throw-away sentence in the speech of Lord Uthwatt in Tankexpress A/S v Compagnie Financire Belge des Petroles SA [1948] 2 All ER 939 at 949, [1949] AC 76 at 100, in which he said, 'Courts of equity, indeed, in appropriate cases relieve against failure to pay on a stipulated day,' but did not suggest that the operation of a withdrawal clause in a time charter provided a case that was 'appropriate', the origin of what I will, proleptically at this stage, describe as a beguiling heresy, which the Court of Appeal rejected in the instant case, is to be found in Lord Simon's speech in The Laconia. In The Laconia itself the availability of equitable relief had not been raised in the courts below; and, since it had not occurred to anyone to invite the judge to exercise a discretion to grant relief, the House had ruled that the point could not be taken in argument in the appeal. I need not cite the passages in Lord Simon's speech that gave encouragement to future charterers to claim equitable relief against withdrawal of the vessel under a withdrawal clause in a time charter, except to note that after referring to a possible analogy to relief against forfeiture for non-payment of rent under leases of real property he says ([1977] 1 All ER 545 at 554, [1977] AC 850 at 874):
'... in any case, English law develops by applying an established rule of law to new circumstances which are analogous

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to the circumstances in which the rule was framed ... '

Nor need I cite the passages in the speeches of Lord Wilberforce and Lord Salmon in which the analogy with leases of real property is decried. A time charter, unless it is a charter by demise, with which your Lordships are not here concerned, transfers to the charterer no interest in or right to possession of the vessel: it is a contract for services to be rendered to the charterer by the shipowner through the use of the vessel by the shipowner's own servants, the master and the crew, acting in accordance with such directions as to the cargoes to be loaded and the voyages to be undertaken as by the terms of the charterparty the charterer is entitled to give to them. Being a contract for services it is thus the very prototype of a contract of which before the fusion of law and equity a court would never grant specific performance: see Clarke v Price (1819) 2 Wils Ch 157, 37 ER 270, Lumley v Wagner (1852) 1 De GM & G 604, [1843-60] All ER Rep 368. In the event of failure to render the promised services, the party to whom they were to be rendered would be left to pursue such remedies in damages for breach of contract as he might have at law. But as an unbroken line of uniform authority in this House, from the Tankexpress, case to A/S Awilco v Fulvia SpA di Navigazione, The Chikuma [1981] 1 All ER 652, [1981] 1 WLR 314, has held that, if the withdrawal clause so provides, the shipowner is entitled to withdraw the services of the vessel from the charterer if the latter fails to pay an instalment of hire in precise compliance with the provisions of the charter. So the shipowner commits no breach of contract if he does so and the charterer has no remedy in damages against him. To grant an injunction restraining the shipowner from exercising his right of withdrawal of the vessel from the service of the charterer, though negative in form, is pregnant with an affirmative order to the shipowner to perform the contract; juristically it is indistinguishable from a decree for specific performance of a contract to render services; and in respect of that category of contracts, even in the event of breach, this is a remedy that English courts have always disclaimed any jurisdiction to grant. This is, in my view, sufficient reason in itself to compel rejection of the suggestion that the equitable principle of relief from forfeiture is juristically capable of extension so as to grant to the court a discretion to prevent a shipowner from exercising his strict contractual rights under a withdrawal clause in a time charter which is not a charter by demise. My Lords, Lloyd J who, as counsel for the charterers in The Laconia had been prevented [1983] 2 All ER 763 at 767 from arguing the point, was enabled to return to the charge when there came before him as judge of the Commercial Court The Afovos, in which the question of jurisdiction to grant relief against the operation of a withdrawal clause was argued. That case also ultimately reached this House, where it was decided on the ground that on the true construction of a 'non-technicality clause' included in a time charter in New York Produce Exchange form, the shipowner's notice of withdrawal was invalid. This made it unnecessary to refer in the speeches in this House to that part of Lloyd J's judgment where he had discussed the jurisdiction to grant a charterer relief from the operation of a withdrawal clause. In this House that was a question that was never reached. In dealing with the jurisdiction point in The Afovos Lloyd J, in addition to adopting Lord Simon's suggested analogy between re-entry on leasehold premises for non-payment of rent and withdrawal of a ship for non-payment of hire (an analogy which I reject for the reasons that I have already given), sought to extract from the speech of Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] 1 All ER 90, [1973] AC 691 a more general proposition that wherever a party to a contract was by its terms given a right to terminate it for a breach which consisted only of non-payment of a sum of money and the purpose of incorporating the right of termination in the contract was to secure the payment of that sum, there was an equitable jurisdiction to grant relief against the exercise of the right of termination.

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My Lords, Shiloh Spinners Ltd v Harding was a case about a right of re-entry on leasehold property for breach of a covenant, not to pay money but to do things on land. It was in a passage that was tracing the history of the exercise by the Court of Chancery of its jurisdiction to relieve against forfeiture of property that Lord Wilberforce said ([1973] 1 All ER 90 at 100, [1973] AC 691 at 722):
'There has not been much difficulty as regards two heads of jurisdiction. First, where it is possible to state that the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money, equity has been willing to relieve on terms that the payment is made with interest, if appropriate, and also costs.'

That this mainly historical statement was never meant to apply generally to contracts not involving any transfer of proprietary or possessory rights, but providing for a right to determine the contract in default of punctual payment of a sum of money payable under it, is clear enough from Lord Wilberforce's speech in The Laconia. Speaking of a time charter he said: 'It must be obvious that this is a very different type of creature from a lease of land.' Moreover, in the case of a time charter it is not possible to state that the object of the insertion of a withdrawal clause, let alone the transaction itself, is essentially to secure the payment of money. Hire is payable in advance in order to provide a fund from which the shipowner can meet those expenses of rendering the promised services to the charterer that he has undertaken to bear himself under the charterparty, in particular the wages and victualling of master and crew, the insurance of the vessel and her maintenance in such a state as will enable her to continue to comply with the warranty of performance. This, the commercial purpose of obtaining payment of hire in advance, also makes inapplicable another analogy sought to be drawn between a withdrawal clause and a penalty clause of the kind against which courts of law, as well as courts of equity, before the Judicature Acts had exercised jurisdiction to grant relief. The classic form of penalty clause is one which provides that on breach of a primary obligation under the contract, a secondary obligation shall arise on the party in breach to pay to the other party a sum of money which does not represent a genuine pre-estimate of any loss likely to be sustained by him as the result of the breach of primary obligation but is substantially in excess of that sum. The classic form of relief against such a penalty clause has been to refuse to give effect to it, but to award the common law measure of damages for the breach of primary obligation instead. Lloyd J in The Afovos attached importance to the majority judgments in Stockloser v Johnson [1954] 1 All ER 630, [1954] 1 QB 476, which expressed [1983] 2 All ER 763 at 768 the opinion that money already paid by one party to the other under a continuing contract prior to an event which under the terms of the contract entitled that other party to elect to rescind it and to retain the money already paid might be treated as money paid under a penalty clause and recovered to the extent that it exceeded to an unconscionable extent the value of any consideration that had been given for it. Assuming this to be so, however, it is incapable of having any application to time charters and withdrawal notices. Moneys paid by the charterer prior to the withdrawal notice that puts an end to the contract for services represent the agreed rate of hire for services already rendered, and not a penny more. All the analogies that ingenuity has suggested may be discovered between a withdrawal clause in a time charter and other classes of contractual provisions in which courts have relieved parties from the rigour of contractual terms into which they have entered can in my view be shown on juristic analysis to be false. Prima facie parties to a commercial contract bargaining on equal terms can make 'time to be of the essence' of the performance of any primary obligation under the contract that they please, whether the obligation be to pay a sum of money or to do something else. When time is made of the essence of a primary obligation, failure to perform it punctually is a breach of a condition of the contract which entitles the party not in breach to elect to treat the breach as putting an end to all primary obligations under the contract that have not already been performed. In the Tankexpress case this House held that time was of the essence of the very clause with which your Lordships are now concerned where it appeared in what was the then current

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predecessor of the Shelltime 3 charter. As is well known, there are available on the market a number of so-(mis)called 'anti-technicality clauses', such as that considered in The Afovos, which require the shipowner to give a specified period of notice to the charterer in order to make time of the essence of payment of advance hire; but at the expiry of such notice, provided it is validly given, time does become of the essence of the payment. My Lords, quite apart from the juristic difficulties in the way of recognising a jurisdiction in the court to grant relief against the operation of a withdrawal clause in a time charter, there are practical reasons of legal policy for declining to create any such new jurisdiction out of sympathy for charterers. The freight market is notoriously volatile. If it rises during the period of a time charter, the charterer is the beneficiary of the windfall which he can realise if he wants to by sub-chartering at the then market rates. What withdrawal of the vessel does is to transfer the benefit of the windfall from charterer to shipowner. The practical objections to any extension to withdrawal clauses in time charters of an equitable jurisdiction to grant relief against their exercise are so convincingly expressed by Robert Goff LJ in the judgment of the Court of Appeal in the instant case that I can do no better than to incorporate them in my own speech for ease of reference ([1983] 1 All ER 301 at 308-309, [1983] 2 WLR 248 at 257-258):
'Parties to such contracts should be capable of looking after themselves; at the very least, they are capable of taking advice, and the services of brokers are available, and are frequently used, when negotiating terms. The possibility that shipowners may snatch at the opportunity to withdraw ships from the service of time charterers for non-payment of hire must be very well known in the world of shipping; it must also be very well known that anti-technicality clauses are available which are effective to prevent any such occurrence. If a prospective time charterer wishes to have any such clause included in the charter, he can bargain for it; if he finds it necessary or desirable to agree to a charter which contains no such clause, he can warn the relevant section of his office, and his bank, of the importance of securing timeous payment. But the matter does not stop there. It is of the utmost importance in commercial transactions that, if any particular event occurs which may affect the parties' respective rights under a commercial contract, they should know where they stand. The courts should so far as possible desist from placing obstacles in the

[1983] 2 All ER 763 at 769

way of either party ascertaining his legal position, if necessary with the aid of advice from a qualified lawyer, because it may be commercially desirable for action to be taken without delay, action which may be irrevocable and which may have far-reaching consequences. It is for this reason, of course, that the English courts have time and again asserted the need for certainty in commercial transaction, for the simple reason that the parties to such transactions are entitled to know where they stand and to act accordingly. In particular, when a shipowner becomes entitled, under the terms of his contract, to withdraw a ship from the service of a time charterer, he may well wish to act swiftly and irrevocably. True, his problem may, in any particular case, prove to be capable of solution by entering into a without prejudice argeement with the original time charterer, under which the rate of hire payable in future will be made to depend on a decision, by arbitrators or by a court, whether he was in law entitled to determine the charter. But this is not always possible. He may wish to refix his ship elsewhere as soon as possible, to take advantage of a favourable market. It is no answer to this difficulty that the ship may have cargo aboard at the time, so that her services cannot immediately be made available to another charterer (cf The Afovos [1980] 2 Lloyd's Rep 469 at 479 per Lloyd J); for one thing the ship may not have cargo on board, and for another she can be refixed immediately under a charter to commence at the end of her laden voyage. Nor is it an answer that the parties can immediately apply to arbitrators, or to a court, for a decision, and that both maritime arbitrators and the Commercial Court in this country are prepared to act very quickly at very short notice. For, quite apart from the fact that some delay is inherent in any legal process, if the question to be decided is whether the tribunal is to grant equitable relief, investigation of the relevant circumstances, and the collection of evidence for that purpose, cannot ordinarily be carried out in a very short period of time.'

For all these reasons I would dismiss this appeal. I do so with the reminder that the reasoning in my speech has been directed exclusively to time charters that are not by demise. Identical considerations would not be applicable to bareboat charters and it would in my view be unwise for your Lordships to express any views about them.

LORD KEITH OF KINKEL.

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My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Diplock, and for the reasons given by him, with which I agree, I too would dismiss the appeal.

LORD SCARMAN. My Lords, I have had the advantage of reading in draft the speech delivered by my noble and learned friend Lord Diplock. I agree with it, and for the reasons he gives would dismiss the appeal.

LORD ROSKILL. My Lords, I have had the advantage of reading in draft the speech delivered by my noble and learned friend Lord Diplock. For the reasons he gives I, too, would dismiss this appeal.

LORD BRIDGE OF HARWICH. My Lords, for the reasons given in the speech of my noble and learned friend Lord Diplock, with which I entirely agree, I would dismiss this appeal. Appeal dismissed. Solicitors: Elborne Mitchell & Co (for the charterers); Sinclair Roche & Temperley (for the owners).

Mary Rose Plummer Barrister.