Class requirements in the BARECON 89. Condition or intermediate term? The “ARCTIC”

The BARECON 89 form is thought to be the most commonly used bareboat charterparty form worldwide.  This case considers the provisions in this form in relation to a vessel’s class status.

Clause 9A requires bareboat charterers:

[to]“….keep the Vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times…”

Owners chartered the ship out to the charterers for 15 years in October 2012.  It is clear things had not gone well over the years.  Owners had concerns about payment of hire and maintenance.  They had, in fact, attempted to withdraw the ship from the charter previously albeit that this is not of direct relevance to the present case. At the relevant time, the vessel’s Class certification had expired, so plainly charterers had not complied with their obligation in that respects “at all times”.  They had steps in hand to dry dock, however, to complete the necessary maintenance and repair and restore class.  Nevertheless, owners issued a notice alleging breach of clause 9A by the bareboat charterers and accepting the breach as terminating the charterparty.  Whether or not they were entitled to do so made swift progress through arbitration to an appeal before the High Court and, now, to the Court of Appeal.  The question for the Court of Appeal was whether clause 9A amounts to a condition in the full legal sense of that term or whether it is what is variously called an innominate or intermediate term.

The question for the Court of Appeal was whether clause 9A amounts to a condition in the full legal sense of that term or whether it is what is variously called an innominate or intermediate term.

The significance of the distinction is that if the charterers were in breach of a condition, the owners were entitled to terminate the contract.  On the other hand, if the term was innominate the owners’ immediate remedy depends on the seriousness of the breach.

The arbitrators found that the term was not a condition.  That finding was overturned by Carr J on appeal to the High Court.  Her reasoning is best summed up in this very short extract from a detailed, carefully considered judgment:

“Only one kind of breach of the classification obligation is possible…Either the Vessel is in class or it is not.  The language of the obligation is in no way inconsistent with the concept of its being a condition, and if anything suggests that it is.  It is clear and absolute with a fixed time limit, redolent of a condition”

So, did the Court of Appeal agree?  In the most general sense, judicial opinion was succinctly summed up by Hamblen LJ in the earlier Court of Appeal decision of Spar Shipping [2016] EWCA Civ 982on which also see the October 2016 edition of Bentleys’ Bulletin -

“…the modern approach is that a term is innominate unless a contrary intention is made clear.”

Gross LJ, also a judge in the Spar Shipping case, gave the sole judgment of the Court of Appeal in this case.  For a wide variety of reasons he found the term was not a condition.  Most important amongst these were that:

  • It was not stated to be a condition.  This was against a background where the BARECON 89 was carefully drafted by an industry committee who, although the judge does not expressly say so, would have been aware of the vital difference between a term and a condition.
  • It could not be regarded as a “time clause”.  That is to say a moment in time at which something must be done and failing which consequences ensued.  It was simply a general requirement to keep the ship in class over 15 years.  Beyond that there was no reference to time at all.
  • The term is in the middle of a much wider clause relating to the maintenance and operation of the ship.  Read as a whole there was no reason to pick this one element out in isolation as a condition.
  • Although the consequences of the breach might be “very grave” they could also be merely be “trivial” or “minor”.  For example, it could be that class was lost for a very short time.  Again quoting from Spar Shipping the judge found this “suggested the term is innominate rather than a condition.”

If the intention is truly that a term should amount to a condition, that will have to be stated in the contract in clear, unequivocal language.

In reaching that overall finding he went on to say:

“…this conclusion best accords with the language, structure and scheme of the charterparty, together with business common sense.  While the categories of conditions are not closed, the term simply lacks the hallmarks of a condition.  The alternative…is to risk trivial breaches having disproportionate consequences destructive of a long-term contractual relationship.”

In this respect, it would seem that in the light of progressive legal developments in this area, it could be necessary to consider revisions to many industry standard forms.  If the intention is truly that a term should amount to a condition, that will have to be stated in the contract in clear, unequivocal language.

…this conclusion best accords with the language, structure and scheme of the charterparty, together with business common sense.  While the categories of conditions are not closed, the term simply lacks the hallmarks of a condition.  The alternative…is to risk trivial breaches having disproportionate consequences destructive of a long-term contractual relationship.

Gross LJ

Ark Shipping Company LLC v Silverburn Shipping (IOM) Ltd (The “ARCTIC”) [2019] EWCA Civ 1161

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