Mr Justice Simon:
Introduction
- The Claimants ('the Owners') appeal in respect of questions of law arising out of an arbitration award dated 22 July 2010 ('the Award') of Lionel Persey QC, sitting as a sole arbitrator. The Arbitrator held that the Defendants ('the Charterers') were entitled to terminate a five year time charterparty ('the Charterparty') by which the Owners let the MT 'Savina Caylyn' to the Charterers at a daily rate of US$27,000, on the terms of an amended 'Shelltime 4' form dated 9 July 2007.
- The decision was based on the proper construction of clause 50 of the Charterparty and, in particular, the provision,
... should be (sic) Vessel be failed on three (3) consecutive oil major vetting reviews/inspections due to Owners' / Vessel's reason, the Charterer's (sic) shall have the option to put the vessel immediately off-hire until the vessel next passes a vetting /inspection ... and shall have the option to cancel the charter ... A vetting review/inspection is defined as a nomination by the Charterer's (sic) to an oil major and the oil major reviewing the vessel by either a physical inspection or latest SIRE inspection report…
At this stage I shall refer to this passage as 'the relevant part of clause 50'; but it will be necessary to look at the entirety of the clause and its commercial context in the course of this Judgment.
- On 26 February 2010 the Charterers gave notice of the cancellation of the Charterparty on the basis of 10 consecutive rejections which met the criteria set out in clause 50 ('Qualifying Rejection'). The Owners disputed their right to cancel and the matter was referred to Arbitration at an expedited hearing. In the course of the arbitration the Charterers abandoned a number of the Qualifying Rejections they had initially relied on, and the Arbitrator found that the Charterers had established four Qualifying Rejections in a consecutive run, and consequently held that the Charterers were entitled to terminate the Charterparty.
- The matter comes before the Court because clause 41(c)(ii) provided that either party could appeal to the High Court on any question of law arising out of the award.
A summary of the issues on the appeal
- Three issues of law arise directly on this appeal.
- First, what was intended by the reference to 'oil major' in the relevant part of clause 50. The Owners contended that it meant one of the five major oil companies named in an earlier part of clause 50, namely: BP, Shell, ExxonMobil, Chevtex and Total Fina Elf. The Charterers argued that it meant one of the six established oil majors as generally understood: ConocoPhillips, in addition to the five major oil companies identified in the earlier part of clause 50. The Arbitrator accepted the Charterers' submissions on this point. The significance of this finding is that one of the rejections identified by the Arbitrator, and found by him to be a Qualifying Rejection, was by ConocoPhillips.
- The second issue concerns the meaning of the phrase 'failed on three (3) consecutive oil major vetting reviews/inspections' in the relevant part of Clause 50. The Owners argued that if (as happened) there were a 'pass' in what would otherwise have been three consecutive failures it would interrupt that run of failures. The Charterers argued that any pass had to be the result of a vetting review or inspection following a 'nomination by the Charterers to an oil major.' The pass which the Owners relied on was the result of a unilateral approach to BP by the Owners, and not by a nomination by the Charterers to BP. The Arbitrator also found in favour of the Charterers on this issue.
- The third issue relates to the tanker vetting system as found by the Arbitrator; and in particular, the significance of the Ship Inspection Report ('SIRE') system in the vetting review. The Owners contended that there could only be a Qualifying Rejection following a vetting review where the latest SIRE inspection report was the (or an) effective cause of the rejection. The Owners point out that in none of the 3 Qualifying Rejections found by the Arbitrator (as being relevant to the issue) was there a reference to the review of the SIRE Inspection Report being the (or an) effective cause of the rejection. The Charterers argued that it was sufficient to found a Qualifying Rejection if the latest SIRE Inspection report had been considered by the oil major as part of the process. The Arbitrator found in Charterers' favour on this point.
The terms of clause 50
- It is convenient to set out clause 50, adopting the format used by the Arbitrator. This involves breaking up the clause into a number of enumerated subdivisions which do not exist in the original. The Arbitrator adopted this approach for convenience; but it is right to note that clause 50 (as drafted) is very much less tidy, being broken up into sub-paragraphs which do not follow any clear pattern. I take into account Mr Lord's warning that one should not lose sight of the rough nature of the clause as it appears in the Charterparty, which he accurately described as 'lengthy and somewhat opaque'.
50. VESSEL'S APPROVAL CLAUSE. (AMENDED)
1.1 UPON DELVERY FROM SHIPYARD: OWNERS SHALL USE BEST ENDEAVORS TO OBTAIN PRE-APPROVALS, WHICH SHALL INCLUDE, BUT NOT LIMITED TO, INSPECTION OF THE VESSEL IN THE SHIPYARD OR AT FIRST BUNKERING OPERATION IF/WHEN POSSIBLE. IF PRE-APPROVALS ARE NOT OBTAINED WHEN THE VESSEL IS IN THE BUILDING YARD OR AT THE FIRST BUNKERING, OWNERS WILL USE BEST ENDEAVORS TO OBTAIN THE MINIMUM 3 (THREE) MAJOR OIL COMPANY APPROVALS AS SOON AS POSSIBLE, HOWEVER, SAID APPROVALS MUST BE IN PLACE NOT LATER THAN 60 (SIXTY) DAYS FROM DATE OF DELIVERY (SUBJECT TO VESSEL'S TRADING AREAS AND AVAILABILITY OF INSPECTORS).
1.2 (1) IF OWNERS FAILS TO SECURE THE 3 (THREE) MINIMUM APPROVALS AFTER 60 (SIXTY) DAYS OF DELIVERY FROM THE SHIPYARD, CHARTERER'S HAVE THE OPTION, TO EXTEND THE 60 (SIXTY) DAY PERIOD OR TO PLACE THE VESSEL OFF-HIRE FROM THE DATE AND TIME THAT SHE FAILS TO HOLD THE MINIMUM 3 (THREE) APPROVALS.
1.3 IF OWNERS SUBSEQUENTLY FAIL TO SECURE THE 3 (THREE) MINIMUM APPROVALS AFTER AN ADDITIONAL PERIOD OF 60 DAYS, CHARTERER'S MAY, WITHOUT PREJUDICE TO ANY OTHER TERMS OF THIS CHARTER, TERMINATE THE CHARTER PARTY BY SERVING NOTICE OF EARLY REDELIVERY TO OWNERS.
2.1 DURING THE CURRENCY OF THIS CHARTER PARTY: OWNERS WILL (IF SO REQUESTED BY THE CHARTERER'S) CO-OPERATE IN HAVING THE VESSEL INSPECTED BY OIL COMPANIES IF ANY CURRENT SIRE REPORT HAS TO BE RENEWED.
2.2 OWNERS WILL USE BEST ENDEAVORS TO HAVE THE VESSEL INSPECTED AND APPROVED BY A MINIMUM OF 3 OF BP, SHELL, EXXONMOBIL, CHEVTEX AND TOTAL FINAL ELF WITHIN 60 DAYS OF THE DELIVERY OF THE VESSEL INTO THIS CHARTER.
2.3 (i) IF THE VESSEL IS REJECTED OR REFUSED PERMISSION TO CARRY OUT CARGO OPERATIONS BY ANY SUB-CHARTERER OR TERMINAL OPERATOR CONSEQUENT UPON ANY VETTING INSPECTION CARRIED OUT UNDER THE SIRE SYSTEM, OWNERS WILL RECTIFY THE FAULTS IDENTIFIED IN THE VETTING INSPECTION AND HAVE THE VESSEL INSPECTED AGAIN AS SOON AS IS REASONABLY PRACTICABLE.
2.4 (ii) SHOULD THE CHARTERER'S OTHERWISE REQUIRE VETTING INSPECTIONS OF THE VESSEL AND IF THESE INSPECTIONS ARE CARRIED OUT DURING THE CURRENCY OF THIS CHARTER, THEN ANY LOSS OF TIME, DEVIATION COSTS AND INSPECTION FEES IN CONNECTION WITH THE INSPECTION SHALL BE FOR THE CHARTERER'S' ACCOUNT.
3.1 A FAILED VETTING INSPECTION UNDER THE SIRE SYSTEM BY THE CHARTERER'S OR ANY OTHER COMPANY SHALL NOT OF ITSELF CONSTITUTE A REASON FOR THE CHARTERER'S TO PUT THE VESSEL OFF·HIRE OR ENABLE THE CHARTERER'S TO ASSERT A CLAIM UNDER THIS CHARTER.
3.2 HOWEVER, SHOULD BE VESSEL BE FAILED ON THREE (3) CONSECUTIVE OIL MAJOR VETTING REVIEWS/INSPECTIONS DUE TO OWNERS'/VESSEL'S REASON, THE CHARTERER'S SHALL HAVE THE OPTION TO PUT THE VESSEL IMMEDIATELY OFF-HIRE UNTIL THE VESSEL NEXT PASSES A VETTING INSPECTION, SUCH FAILURE SHALL AMOUNT TO A BREACH OF THIS CHARTER AND CHARTERER'S SHALL HAVE THE OPTION TO CANCEL THECHARTER WITHOUT RECOURSE TO EITHER PARTY, GIVING 30 DAYS NOTICE OF SUCH CANCELLATION.
3.3 A VETTING REVIEW / INSPECTION IS DEFINED AS A NOMINATION BY THE CHARTERER'S TO AN OIL MAJOR AND THE OIL MAJOR REVIEWING THE VESSEL BY EITHER A PHYSICAL INSPECTION OR LATEST SIRE INSPECTION REPORT. A FAILURE WOULD CONSIST OF THE OIL MAJOR REJECTING THE VESSEL DURING THIS PROCESS.
4. THE VESSEL'S VPQ WILL BE MAINTAINED FULLY UP TO DATE BY OWNERS WHENEVER NECESSARY DURING THE CHARTER.
The factual background
- At §9 of his Reasons the Arbitrator set out his approach to the construction of Clause 50 by reference to the commercial background, including the expert evidence relied on by the parties about the process of tanker vetting and approval. From §11 he described the SIRE system established by the Oil Companies International Marine Forum (OCIMF)
13. ... [owners and charterers] wished to ensure that an acceptable supply of safely managed tankers was available for hire and to take all necessary steps to ensure that chartered tankers carried and delivered their cargoes safely and without risk to human life and to the environment ...
- The Arbitrator noted a distinction between a SIRE inspection and vetting (§15). A SIRE Vessel Inspection Report (or VIQ) described the inspection and reporting element of the SIRE Report, which involved both inspection findings and the operator's responses.
17. When a company carries out a vetting review for a proposed operation or contract it evaluates the inspection report(s) (together with any other documentary material upon which the company would normally rely) and makes its own judgment upon the data. It is quite possible, therefore, for one oil major to deem a vessel to be acceptable for a particular piece of business based on the latest SIRE report, whereas another oil major might deem the same vessel to be unacceptable for that same piece of business. Negative vetting decisions are normally communicated to the party proposing the business without reasons and without the vetting company separately informing the operator. Thus a vessel operator will usually not know why the vessel has not been accepted.
- At §19 of the Reasons the Arbitrator set out his findings in relation to the vetting process, which included consideration of the latest SIRE inspection report and other material; with different oil companies giving different weightings to particular pieces of information in their vetting databases.
- Significantly in the context of the third issue, the Arbitrator recorded,
21. I am satisfied on all the evidence that I have read and heard that an oil major will use the SIRE system and have recourse to the latest SIRE report as part of the database from which information is drawn in order to vet the vessel ...
22. Further, I am satisfied that the reasonable owner/operator and charterer of an oil tanker entering into this charter will have reasonably (and correctly) assumed that the latest SIRE report on the database would form at least part (and probably a very important part) of the data considered by an oil major when carrying out a vetting.
- At §28(2) of the Reasons he identified the findings at §§21 and 22 as being of 'particular relevance' to the issues which he had to determine.
The events giving rise to the notice of cancellation
- The Vessel was delivered into service in June 2008 and traded successfully for almost eighteen months without any vetting problems. The first indication that there was an issue with the Vessel's vetting status was in early December 2009 following an inspection by Shell on 2 November 2009. The first Qualifying Rejection found by the Arbitrator was by ChevTex on 1 December 2009. On 9 December 2009, the Vessel undertook a SIRE inspection carried out by BP. The inspection did not follow a nomination to BP by the Charterers; it was carried out at the Owners' request. The result of that inspection was a pass, as communicated to Owners on 12 January 2010.
- The Vessel was involved in a collision in the Malacca Straits on 23 December 2009. The Owners contend that the collision was either the reason or one of the reasons for at least some of the subsequent vetting failures.
- The Arbitrator found that the Vessel suffered three further Qualifying Rejections, two on 12 February 2010 (by Total and ConocoPhillips), and one on 24 February 2010 by ChevTex.
- On 26 February the Charterers wrote to the Owners giving notice of cancellation under Clause 50.
The admissibility of factual material relied on by the Claimants
- The admission of evidence on the hearing of an appeal under s. 69 has been the subject of two recent statements of principle by Judges of the Commercial Court. In Great Western Trains Co. Ltd v Network Rail Infrastructure Ltd [2010] EWHC 117 (Comm) [89], and Sylvia Shipping Co Ltd v. Progress Bulk Carriers Ltd (The 'Sylvia') [2010] EWHC 542 (Comm) [85-88], Gross and Hamblen JJ gave clear guidance as to the material which should be placed before the Court on an appeal under s.69 of the Act. In each case the comments were made by way of postscript. In the present case the issue arises starkly since the Owners seek to rely on a number of documents, apart from the Charterparty and the Award, in support of their arguments on the appeal.
- Mr Lord QC (on behalf of the Owners) accepted that the Courts have taken a restrictive view of the documents which may properly be considered at the hearing of an arbitration appeal, see for example Colman J's observation in Foley's Ltd v City and East London Family and Community Services [1997] ADRLJ 401 (an appeal under the Arbitration Act 1979), that the only admissible documents were the award and the reasons. He accepts that this restrictive approach has been followed in relation to appeals under s.69 of the 1996 Act, see HOK Sport v Aintree Racecourse [2002] EWHC 3094 (TCC). However, he submitted that recent authorities have departed from this strict approach so as to widen the ambit of admissible material: Kershaw v Kendrick [2006] 4 All ER 79 (TCC) Jackson J, and White Young Green v. Brooke House Sixth Form College [2007] EWHC 2018 (TCC) Ramsey J. He further relied on the revised CPR Practice Direction 62 - arbitration.
- For the Charterers Mr Southern QC submitted that there has been no loosening of the strict approach as to the admissibility of extraneous material and that the cases relied on by Mr Lord do not permit the admission of evidence on which reliance is placed in the present case.
- Having considered the submissions and cases relied on, I have come to the following conclusions.
- (1) There has been no relaxation of the general rule which has existed for many years that only the award and the relevant contract should be put before the Court. The principle is conveniently summarised in the judgment of Hamblen J in The 'Sylvia' (see above):
86. ... As a general rule, the only documents which should be put before the court on an arbitration appeal are the award itself and the relevant contract. Unless clearly incorporated by reference, other arbitration documents are usually irrelevant and inadmissible. Unless there is a disputed issue as to whether the question of law was one which the tribunal was asked to determine, the same applies to applications for permission to appeal.
87. As clearly stated by the Court of Appeal in Universal Petroleum Co Ltd v Handels und Transport GmbH [1987] 1 WLR 1178 at page 1189:
'… under subsection (2) appeals are only permitted 'on any question of law arising out of an award…,' and 'question of law' in subsection (4) has the same meaning. The emphasised words are crucial. The question of law must arise 'out of (the) award', not out of the arbitration.'
88. Although Kerr LJ was there referring to the 1979 Arbitration Act, his statement is equally applicable to the 1996 Act, in which the same language is used. For the purpose of determining an appeal on a question of law 'arising out of an award' it is the award itself which has to be considered.
- The rule applies whether the appeal is brought by agreement under s.69(2)(a) or with leave under s.69(2)(b), since in each case the appeal to the court must be 'on a question of law arising out of an award,' see s.69(1).
- The revised Practice Direction 62 states
12.5. ... no arbitration documents may be put before the court other than ...
(2) any document (such as the contract or the relevant parts thereof) which is referred to in the award and which the court needs to read to determine a question of law arising out of the award ...
In this Practice Direction "arbitration documents" means documents adduced in or produced for the purposes of the arbitration.
...
12.10 If either party wishes to invite the court to consider arbitration documents other than those specified in paragraph 12.5 above the counsel or solicitor responsible for settling the application documents must write to the court explaining why that is necessary.
...
12.15 The bundle for the hearing of any appeal should contain only the claim form, the respondent's notice, the arbitration documents referred to in paragraph 12.5, the order granting permission to appeal and the skeleton arguments
- This is plainly not intended to widen the scope of documents which may be placed before the court.
- (2) There is a confined category of case where either the Award has set out the relevant contractual terms in an abbreviated form, or has summarised the effect of an identified contractual exchange or has identified particular documents as having contractual effect without setting out their terms. These are circumstances in which it may be appropriate for a party to invite the Court to view additional material. It was these categories which Jackson J had in mind in Kershaw v. Kendrick (see above).
44. ... The arbitrator helpfully identifies the relevant correspondence and documents in his award although, for obvious reasons, he does not recite them from beginning to end. Nevertheless, for the purpose of this appeal, the court needs to look at the contractual correspondence and documents which the arbitrator has identified ...
45. In my view the guidance given in the HOK Sport case should be modified to this extent. The principal document which should be considered in any appeal under section 69 of the 1996 Act is the arbitral award itself. In addition to that, however, the court should also receive any document referred to in the award, which the court needs to read in order to determine a question of law arising out of the award.
This was also the approach followed by Ramsey J in the White Young Green Consulting case (referred to above) at [25]
It seems to me that, in general terms, where the court is considering the question of leave to appeal against an award, it is also necessary to have before the court both the award and any documentation which is referred to in the award and which is needed so as to make clear what the arbitrator is referring to within the part of the award relevant to the appeal. Obviously, if the arbitrator sets out the document in its full terms there is no need for that document to be supplied but, where documents are merely referred to or summarised, it may sometimes be helpful to have those documents in front of the court ...
- The same principles apply both to an application for permission (as in the White Young Green Consulting case) or for a substantive appeal hearing (as in Kershaw v. Kendrick); and can be framed as the admissibility of documents which have a high degree of relevance to the identified question of law and without which the court cannot carry out its appellate function. To adopt the language of the Practice Direction, they must be documents which the Court needs in order to determine the question of law.
- (3) An appeal on a question of law is confined to facts found by the Award. Steyn LJ conveniently summarised the position under the 1979 Act in Geogas SA v. Trammo Gas Ltd, The 'Baleares' [1993] 1 Lloyd's Rep 215, at 227:
... The arbitrators are the masters of the facts. On an appeal the Court must decide any question of law arising from an award on the basis of a full and unqualified acceptance of the findings of fact of the arbitrators. It is irrelevant whether the Court considers those findings of fact to be right or wrong.
Later in the same passage Steyn LJ identified the numerous means by which dissatisfied parties have sought to challenge the findings of fact.
This catalogue of challenges to arbitrators' findings of fact points to the need for the Court to be constantly vigilant to ensure that attempts to question or qualify the arbitrators' findings of fact, or to dress up questions of fact as questions of law, are carefully identified and firmly discouraged.
The same vigilance will be applied to cases under the 1996 Act.
- (4) Although all contracts must be construed against the commercial background which would have been available to the parties at the time the contract was made, see ICS v. West Bromwich BS [1998] 1 WLR 896, Lord Hoffmann at 912-913, the only admissible findings in relation to the commercial background are those in the award.
The application of these principles
- The documents which the Owners seek to adduce starkly demonstrate the importance of applying these principles rigorously.
i) The 26 February Notice of Cancellation is relied on as showing that the Charterers were asserting that a particular company was a Major Oil Company, although they no longer do so. This is said to be 'important factual background necessary for the court to consider' on the first issue.
I doubt whether the post contractual position of the Charterers was ever relevant. It is not important factual background, it is not referred to by the Arbitrator and it is not 'necessary' for the court to consider it. It is wholly irrelevant and inadmissible.
ii) The Expert Reports are relied on because 'the Award does not encapsulate all of the expert evidence necessary to determine the issue of construction.'
The evidence was before the Arbitrator and was considered by him. It is plainly not admissible on an appeal. The expert evidence is, in any event, properly summarised in the Reasons, and on the issue to which it is relevant, was common ground.
iii) 'Intertanko documents'. These are relied on to show that there are standard clauses which refer to oil majors by name.
These documents were not even placed before the Arbitrator. This material is, on any view, wholly irrelevant and inadmissible.
iv) The BP 'Pass' email to Owners dated 12 January 2010. In the Owners' skeleton argument they submit 'simply that it is necessary for the Court to see this document, which lies at the heart of the second ground of appeal.'
The document is not admissible on this basis since it does not fall into the category of documents which the Court needs to see in order to decide the second issue, which depends on the construction of the Charterparty. In any event the document was referred to explicitly and fully at §75 of the Award.
v) The Q88 questionnaire which was referred to in §25 of the Award. It is said that 'it is necessary for the Court to see how the oil major approvals are communicated in the industry as part of the commercial background.'
It was for the Arbitrator to make findings about the commercial background, which he did. This document was not part of the relevant commercial background, it is simply part of an attempt to introduce inadmissible factual material.
vi) The evidence of two rejections which were found not to be Qualifying Rejections, but which are relied on as directly contradicting the Arbitrator's finding about the evidential difficulties which would arise if the Charterers were right in their construction on the third issue.
This is another illegitimate attempt to introduce new factual material to support an argument which might (in any event) be made without reference to evidence.
- For these reasons I find that the new material is irrelevant and inadmissible. I turn then to the questions of law arising from the Award.
The first issue: the meaning of the term 'Oil Majors' in §3.2 of clause 50
- As already noted, the Arbitrator held that the expression 'oil major' in §§3.2 and 3.3 of clause 50 referred to six recognised major oil companies or 'majors': this being common ground between the experts.
- It was submitted on the Owners' behalf that the expression 'oil major' has a meaning which is confined by §2.2 to the five named companies (excluding ConocoPhillips). It is irrelevant how the expression might generally be used: the contract provided its own definition of the expression. The five companies named in §2.2 were the oil majors for all purposes in clause 50, including §§3.2 and 3.3.
- For the Charterers, Mr Southern QC submitted that the Arbitrator's analysis was correct and for the reasons he gave. Clause 50 contains two approval regimes: an on-delivery regime and an in-service regime. The former applies to inspection and approvals in the first 120 days after delivery of the vessel; and the latter applies after the vessel has obtained its initial approvals. Within the on-delivery regime, §§1.1-3 on the one hand, and §2.2 on the other distinguish between initial 'major oil company approvals' and initial approvals by the named 5 companies. By requiring the Owners (i) to use best endeavours to obtain the approval of 3 major oil companies within 60 days, and (ii) obliging them to obtain such approval within 120 days of delivery, but separately requiring the Owners to use best endeavours to obtain approvals from 3 of the 5 named companies within 60 days of the delivery, clause 50 treats 'major oil companies' and the 5 named companies as different, if potentially overlapping, sets. The 5 named companies are a sub-set of the major oil companies. Thus the effect of §2.2 is to identify those companies from whom the Charterers would prefer at least some of the initial approvals to be obtained. It does not restrict the scope of the major oil companies from whom the Owners may obtain approvals in order to comply with §§1.1 or 1.2. Further, the Owners' obligation under §2.2 only applies within the first 60 days of the charter. On that basis it has nothing at all to do with §§3.2 and 3.3 which would ordinarily be invoked long after the first 60 days of the charter.
- In my judgment the Arbitrator was correct in his conclusion. The starting point is the clear finding in §34 of the Reasons that there are six recognised oil majors.
- The ordinary and natural meaning of the unqualified words 'oil major' in §3.2 includes all six major oil companies. This meaning is supported by the reference in §3.3 which provides that,
A VETTING REVIEW / INSPECTION IS DEFINED AS A NOMINATION BY THE CHARTERER'S TO AN OIL MAJOR (emphasis added)
- The question then is whether it was intended to confine the natural meaning of the expression? There was a clear and express intention to confine the meaning in the early part of the clause by the reference to approval from a minimum of three out of five major oil companies. While one can argue (as Mr Lord did) that the drafting of clause 50 does not fit neatly into the Charterers' analysis of separate on-delivery and in-service regimes, for example one would have expected §2.2 to come within §1, the analysis is internally consistent and commercially sound. As the Arbitrator found in §34(4) of the Reasons,
It would make no commercial sense, in my view, for in-service approvals to be limited to a sub-set of oil majors. The tradability of the vessel will be affected by a good or poor report from any of the oil majors.
The second issue: did the BP 'pass' break the sequence of consecutive rejections?
- Following its inspection on 9 December 2009, BP sent an email to the owners indicating that the vessel had passed a SIRE inspection. There is no doubt that if this had followed the Vessel's nomination to BP it would have constituted a qualifying approval which would have broken the chain of three consecutive Qualifying Rejections. It would, to use Mr Lord's phrase, 'reset the clock.' The Arbitrator found that since it was not an inspection which came about as a consequence of a nomination by the Charterers it did not break the run of consecutive rejections.
- Mr Lord submitted that the Arbitrator's conclusion was wrong. The commercial purpose of Clause 50 was to make provision for the procurement of oil major approvals aimed at (i) testing the Vessel's up-to-date condition, and (ii) improving the Vessel's marketability. The latter objective would be achieved through listing approvals and making them available to parties interested in the Vessel. It would be nonsensical for an approval which accorded with this commercial purpose of the clause not 'to count' so as to break a run of Qualifying Rejections.
- For the Charterers it was argued that the 'vetting review/inspection' which can give rise to a right of termination under §3.2 is specifically defined in §3.3, and is dependent upon a nomination by the Charterers. These clear words admit of only one possible meaning. The Arbitrator found as a fact that the BP inspection was commissioned by the Owners 'off their own bat' and did not follow from any nomination by the Charterers.
- I agree with the Charterers' submission. The words of §3.3 are clear.
A VETTING REVIEW / INSPECTION IS DEFINED AS A NOMINATION BY THE CHARTERER'S TO AN OIL MAJOR AND THE OIL MAJOR REVIEWING THE VESSEL BY EITHER A PHYSICAL INSPECTION OR LATEST SIRE INSPECTION REPORT (emphasis added)
If there is no nomination by the Charterers to a particular oil major the vetting review/inspection process is, as a matter of clear wording, irrelevant for the purpose of §§3.2 and 3.3 of clause 50.
- It is necessary at this stage to address the Owners' argument that this construction leads to a commercially absurd result. As Mr Lord noted, §3.2 entitles the Charterers alternative remedies: one of which is to place the vessel off-hire. He submitted that if the Charterers exercised this option rather than cancelling the Charterparty (as they might in appropriate market conditions), unless the Owners were able to procure an approval without a requirement for a Charterers' nomination the vessel would be left in a permanent mercantile limbo.
- It seems to me that he is entitled to test the Arbitrator's construction in this way. In Gan Insurance v Tai Ping Insurance [2001] EWCA Civ 1047 at [16], Mance LJ emphasised the importance of considering the implications of two competing constructions.
In my opinion, a court when construing any document should always have an eye to the consequences of a particular construction, even if they often only serve as a check on an obvious meaning or a restraint upon adoption of conceivable but unbusinesslike meaning.
- There is little ambiguity in the relevant terms as they applied to the facts of the present case. The potentially unbusinesslike consequences would come from the operation of an option that was not exercised. The off-hire clause in the Charterparty provided the Charterers with an option to add any offhire period to the 5 years of the time charter, provided the option was exercised within 30 days. The point does not arise for decision, but the answer may be that a term would be implied that, if the Charterers exercised the off-hire option, they would be bound to nominate to an oil major under §3.3 within a reasonable period.
The third issue: the significance of the latest SIRE inspection
- Clause 50 defined a vetting review/inspection in §3.3
A NOMINATION BY THE CHARTERER'S TO AN OIL MAJOR AND THE OIL MAJOR REVIEWING THE VESSEL BY EITHER A PHYSICAL INSPECTION OR LATEST SIRE INSPECTION REPORT (emphasis added)
- The Owners submitted that the plain wording of this provision is such that a vetting failure can only give rise to a Qualifying Rejection where the latest SIRE Report is the (or an) effective cause of that failure, since a review has to be by either a physical inspection or latest SIRE inspection report. In none of the Qualifying Rejections found by the Arbitrator could it be shown that the BP SIRE Report was either the effective cause or an effective cause of the vessel's failure.
- Mr Southern submitted that the key to this issue lies in the last words of §3.3
A FAILURE WOULD CONSIST OF THE OIL MAJOR REJECTING THE VESSEL DURING THIS PROCESS.
The relevant process is the process by which the oil major reviews the vessel either by a physical inspection or latest SIRE inspection report. The Arbitrator found that oil majors do not normally give reasons for a rejection and that data sources other than the latest SIRE inspection report may be taken into account. It is therefore sufficient that the rejection is 'during this process.' It would often be impossible (even for the oil major, where the vetting procedure is carried out by computer) to say that the rejection was 'caused' by the latest SIRE inspection report.
- I do not accept the Owners' argument that Charterers must prove that the latest SIRE Report was either the effective cause or an effective cause: neither the language of the clause nor the factual background found by the Arbitrator justify such a construction.
- It is clear from §§21-22 of the Reasons that oil majors have recourse to the latest SIRE report as part of the information used to vet the vessel. This point was re-emphasised later in the Reasons.
45. ... it is recognised that oil majors will have access to, and will always consider, a range of information when vetting (including earlier SIRE reports in order to assess whether the latest report shows an improvement or decline in standards);
and,
104. ... It is common ground on the expert evidence that oil majors look at the history of SIRE inspection reports as part of the vetting process in order to identify positive and negative trends.
- The Qualifying Rejections found by the Arbitrator and which are challenged under this issue did not expressly refer to the BP Sire report. However, he made the following findings:
(a) Rejection on 1 December 2009, ChevTex 'probably referred to the latest SIRE report,' (Reasons §68)
(b) Rejection on 9 February 2010, ConocoPhillips 'probably did review the SIRE report,' (Reasons §88) and
(c) Rejection on 24 February 2010, ChevTex 'would have considered the latest report ...'
- In my view the findings that the latest SIRE report was considered as part of the process of nomination and review are sufficient to show that the rejections were Qualifying Rejections within the meaning of §§3.2 and 3.3 of clause 50.
Conclusion
- For these reasons I do not consider that the Arbitrator made any error of law and the Owners' appeal is accordingly dismissed.
