CA-2025-000005 - [2025] EWCA Civ 1227

The section 69 appeal to the High Court

By arbitration claim form issued on 22 April 2024 the Charterers sought leave to appeal the Award on the following question of law:

“What is the correct construction of Clause 29 in the Charter (which is as per the BIMCO Barecon 2001 standard form)? In particular, does it mean and have the effect that:

The Owners are required to repossess the Vessel as soon as practicable basically where the Vessel is upon termination or where the Charterers position her as they wind down their use and possession of the Vessel and take reasonable steps to keep the Vessel safe pending repossession, provided that the Owners are entitled to have the Vessel made available at a port or place that is convenient for repossession in the (objective) sense that it allows an authorised representative and crew to be put on board in a usual way; or

The Charterers are obliged to sail the Vessel to any place nominated by the Owners which the Owners (in good faith) consider to be the place that would be the most convenient to themselves for repossessing the Vessel?”

On 2 August 2024 Cockerill J granted leave to appeal to the High Court. Following the hearing of the appeal on 29 November 2004, the Judge delivered his reserved judgment on 13 December 2024, allowing the appeal.

At [17] the Judge helpfully set out in some detail the well-established framework principles for interpreting a contract governed by English law. As neither party took issue with it, it is convenient to set out here, and adopt for the purposes of this judgment, the Judge’s account of those principles:

The Court construes the relevant words of a contract in its documentary, factual and commercial context assessed in the light of, (i) the natural and ordinary meaning of the provision being construed; (ii) any other relevant provisions of the contract being construed; (iii) the overall purpose of the provision being construed and the contract in which it is contained; (iv) the facts and circumstances known or assumed by the parties at the time the document was executed and (v) commercial common sense but (vi) disregarding subjective evidence of any party’s intentions - see Arnold v Britton [2015] UKSC 36 [2015] AC 169 per Lord Neuberger PSC at [15]… and most recently Sara & Hossein Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2 [2023] 1 WLR 575 per Lord Hamblen at [29(1)];

In carrying out this exercise it is necessary to consider the contract as a whole since it may be apparent from such a reading that the parties intended either a narrower or conceivably a wider meaning than the literal meaning of the words used might suggest when read in isolation - see Barclays Bank plc v Unicredit Bank AG [2014] EWCA Civ 302 [2014] 2 All ER (Comm) 115 per Longmore LJ at paragraph 14. In addition, Apache North Sea Limited v INEOS FPS Limited [2020] EWHC 2081 (Comm) per Foxton J at paragraph 21;

A Court can only consider facts and circumstances known or reasonably available to both parties that existed at the time that the contract was made. See Arnold v Britton per Lord Neuberger PSC at paragraph 21. That which is known to one party alone is immaterial and what is reasonably available generally means what is readily available to all parties - see Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 per Lord Hoffmann at 912 to 913…;

In arriving at the true meaning and effect of a contract, the departure point in most cases will be the language used by the parties because (a) the parties have control over the language they use in the contract and (b) the parties must have been specifically focused on the issue covered by the disputed Clause or Clauses when agreeing the wording of that provision - see Arnold v Britton per Lord Neuberger PSC at paragraph 17;

Where the parties have used unambiguous language, the Court must apply it - see Rainy Sky SA v Kookmin Bank [2011] UKSC 50 [2011] 1 WLR 2900 per Lord Clarke JSC at paragraph 23;

Where the language used by the parties is unclear, the Court can properly depart from its natural meaning where the context suggests that an alternative meaning more accurately reflects what a reasonable person with the parties’ actual and presumed knowledge would conclude the parties had meant by the language they used. However, that does not justify the Court searching for, drafting infelicities in order to facilitate a departure from the natural meaning of the language used - see Arnold v Britton, ibid per Lord Neuberger PSC at paragraph 18;

If there are two possible constructions, the Court is entitled to prefer the construction which is consistent with business common sense and to reject the others. See Rainy Sky SA v Kookmin Bank ibid per Lord Clarke JSC at paragraph 21. However, commercial common sense is relevant only to the extent of how matters would have been perceived by reasonable people in the position of the parties at the date when the contract was made - see Arnold v Britton ibid per Lord Neuberger PSC at paragraph 19.

In striking a balance between the indications given by the language and those arising contextually, the Court should consider the quality of the drafting of the Clause and the agreement in which it appears - see Wood v Capita Insurance Services Ltd [2017] UKSC 24 per Lord Hodge JSC at paragraph 11. Sophisticated, complex agreements drafted by skilled professionals are likely to be interpreted principally by textual analysis unless a provision lacks clarity or is apparently illogical or incoherent - see Wood v Capita Insurance Services Ltd ibid per Lord Hodge JSC at paragraph 13 and National Bank of Kazakhstan v Bank of New York Mellon [2018] EWCA Civ 1390 per Hamblen LJ at paragraphs 39 to 40; and

A Court should not reject the natural meaning of a provision as incorrect simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of the wisdom of hindsight, because it is not the function of a Court when interpreting an agreement to relieve a party from a bad bargain. See Arnold v Britton ibid per Lord Neuberger PSC at paragraph 20 and Wood v Capita Insurance Services Ltd ibid per Lord Hodge JSC at paragraph 11.

Applying these principles should enable a Court to answer what is ultimately the question that arises where there is an interpretation dispute - that is what a reasonable person with all the background knowledge which would have reasonably been available to the parties when they entered the contract, would have understood the language used by the parties to mean - see FCA v Arch Insurance (UK) Ltd [2021] UKSC 1 [2021] 2 WLR 123 per Lords Hamblen and Leggatt JJSC at paragraph 47.”

At [18] the Judge further recorded, as was and remains common ground, that there is no obligation on a gratuitous bailee to take steps to return the bailed items as a matter of general law and that such a bailee can only be required to do so by contract – see Capital Finance Company Ltd v Bray [1964] 1 WLR 323 per Lord Denning MR at 329. The general law obligation is limited to making the bailed item available for collection.

Turning to the application of the principles he had identified, the Judge did not agree with the Tribunal that clause 29 was unambiguous, stating at [20] that, in his judgment, the language used was opaque and failed to specify with either clarity or precision what was intended by the critical clause. Thus, he held, it was necessary to pay particular attention to the commercial context when read as a whole.

At [21] the Judge stated that clauses 28 and 29 were to be read together as a self-contained code for early termination, clause 29 therefore applying whether the Charterers or the Owners were in default, or the Vessel was lost or where either party is affected by an insolvency event. At [22] the Judge stated:

“As is obvious, if the [Owners’] construction of Clause 29 is correct, then the clause is capable of operating in a highly prejudicial manner so far as the charterer is concerned, since on that analysis it would require a charterer which had terminated the charter following the winding up or dissolution, liquidation or bankruptcy of the owner to nevertheless deliver the vessel as required by the owner or as liquidator or receiver anywhere in the world with no prospect of recovering its outlay or at any rate in full, from the insolvent owner. Textually, if correct, the [Owners’] construction renders the reference to that vessel’s current or next port of call entirely unnecessary. Both these factors in my judgment point to the [Owners’] construction being wrong.”

At [23] the Judge stated that the phrase “convenient to them” should be construed narrowly, so as to work fairly in each of the situations within clause 28. That, he stated, was supported by the subsequent text in clause 29, namely, the obligation on the Owners to arrange for its authorised representative to board the Vessel as soon as reasonably practicable and the requirement that the Charterers care for the Vessel as gratuitous bailee pending repossession. The Judge explained his view of the significance of the latter provision as follows:

“The longer that situation continues the greater will be those costs and those costs will be enhanced very substantially, if the owner had an unqualified entitlement to choose where to repossess the vessel. If costs are incurred in carrying out the duty to take reasonable care of the vessel, the bailee, has a correlative right to charge the bailor with the expense of doing so - see China Pacific SA v Food Corporation of India [1982] AC 939 per Lord Simon at 964. That is significant because the costs will, or may, not be recoverable or recoverable in full from an insolvent owner. Taken together in my judgment these factors - that is the textual impact of the conclusion of the reference to the vessel’s current or next port of call, the owner’s express obligation to repossess as soon as reasonably practicable after termination and that pending re-possession the former charterer possesses the vessel concerned as a gratuitous bailee suggest very strongly that it cannot have been the parties’ intention that the owner would [have] an unqualified entitlement to choose where to repossess the vessel in the event of a clause 28 termination.”

At [24] the Judge disagreed with the Tribunal’s finding that the wording requiring the Owners to place a representative on board as soon as reasonably practicable did not impose an obligation requiring the Owners to repossess as soon as practicable regardless of whether a place was convenient to them. The Judge expressed his reasoning to the contrary in [25] as follows:

“If the owners’ representative was able to board the vessel at her “… current … port of call …”, then it would not follow that the owner was entitled nonetheless to insist that the vessel be taken by the ex-charterer at its own initial expense to a place or port where the combination of the voyage time to that port or place and the making of the owners’ representative available at that port or place, would take materially longer than if the owners’ representative had boarded the vessel at its original port where it was located when a termination under clause 28 took effect. Concluding that an owner was entitled to act in this manner would mean ignoring the owner’s obligation to repossess the vessel by arranging for the owners’ representative to board the vessel as soon as reasonably practicable.”

The Judge regarded that point as decisive, concluding at [26] as follows:

“In my judgment, once that point is understood, that really resolves this case. On its true construction, the defendant was required to re-possess the Vessel at Stockton being her “… current … port of call…” unless it was either impossible or impractical for a representative of the defendant to board the Vessel in that port. As the Tribunal found at paragraph 135 of the award, it was reasonably practical for the owners to have repossessed the vessel at Stockton. That is a finding of fact against which there is not and could not be an appeal. Instead, the defendant purported to require the claimant to embark on a voyage of between 37 and 45 days in duration at a cost to be born [sic] by it initially at least of not less than US$500,000. It did not do so because it was impractical or impossible for it to place a representative on board the Vessel in Stockton but because it wished to take possession in Trogir where it had a yard and personnel and probably also because it was in financial difficulty. In my judgment that is not what the parties intended by clause 29.”

The Judge further expressed his conclusion at [28]-[29] as follows:

As I have said, it was reasonably practical for the owners’ representative to board the vessel there in Stockton in far less time than would have elapsed between the vessel being made available in Stockton and the date when the voyage to Trogir could have been completed. Had the [Owners] wished to prove otherwise, [they] could and should have adduced evidence on this point, but it chose not to do so.

In the result therefore, I conclude that on its proper construction, Clause 29 requires the [Owners] to repossess the vessel by causing [their] representative to board the vessel as soon as reasonably practicable after termination. It was reasonably practicable for the [Owners] to have undertaken that task in Stockton and more quickly than by requiring it to be sailed to Trogir. By insisting the vessel was sailed there, the [Owners] acted in breach of [their] obligation to take possession by boarding as soon as reasonably practicable.”

At [31] the Judge explained that the Owners’ proposed interpretation of clause 29, giving primacy to the Owners’ generalised needs and purposes, failed to engage with the task described by Lord Hodge in Wood v Capita Insurance Services Ltd [2017] UKSC 24 at [10] to [12] of checking each interpretation against the contract and its commercial consequences, stating that:

“The construction for which the [Owners contend], divorces the language being used in the first sentence of Clause 29 from the rest of the Clause, from Clause 28 and from the purpose for which the provision was being agreed, which was to facilitate and require repossession of the vessel as soon as reasonably practical after termination.”

Having allowed the Charterers’ appeal, the Judge remitted the Partial Final Award to the Tribunal to reconsider its decision in the light of his conclusion on the question of law appealed.