March 13, 2017

Considering the Meaning of “in light ballast condition” with Reference to Towcon and the Repercussions of Premature Notice to Terminate

Looking at the recent English High Court case of Regulus Ship Services v (i) Lundin Services & (2) IKDAM Production SA [2016] EWHC 2674 (Comm).

The parties had entered into a BIMCO Towage contract. Regulus (the Claimant) agreed that it’s tug the AHTS HARMONY 1 (the Tug) would tow the FPSO IKDAM (the Tow) from Sousse, Tunisia to Lubuan, Malaysian on behalf of Lundin Services (the Defendant). This voyage was for over 12,500 nautical miles at an agreed lump sum of USD 2,750,000.

It was express term of the Towcon that the Tow would be provided in a ‘light ballast condition’. A dispute arose between the parties as the Claimant alleged that the Defendant was in breach of this express term by providing the Tow in ‘heavy ballast condition’. The Claimant argued that this breach caused the voyage to take longer and the Tug to use more fuel than it should have done. The parties had attempted to negotiate a resolution between themselves but with no success.

On 17.03.2013, approaching the end of the voyage, the Claimant instructed the Tug to divert the convoy to Singapore in order to assert a lien over the Tow as security for the Claimant’s above delay claims. The convoy arrived at Singapore on 19.03.13 where it dropped anchor outside port limits. However, shortly after the diversion on 21.03.13, the Claimant had a change of mind and advised the Defendant that they would proceed with the voyage to Lubuan. The Defendant refused to allow the Tow to resume and entered into a new contract for the tow of their vessel from Singapore to Lubuan. The Claimant then sent an email dated 23.03.2013 to the Defendant setting out a notice of termination of the Towcon, back-dating the notice to 21.03.2013:

“… as per Cl.16 (c) of BIMCO Towcon Contract, we hereby give you Notice of Cancellation of Contract & withdrawal of Tug. Further, as per Clause 16 (d) we will give you 48 Hrs Notice, which commenced March 21/2000 LT [8pm local time]…”

The Defendant responded accepting the termination. Both the Claimant and Defendant agree on the repudiation of the Towcon at Singapore. However, the difference of opinion was concerning who was in repudiatory breach of the Towcon.

At Court, the Claimant claimed (i) delay payments for 31.49 days in excess of the anticipated voyage at the contractual rate of USD 21,000 per day; and (ii) damages to reflect the cost of excess fuel consumed, port demurrage charges and miscellaneous expenses.

The Defendant denied that the Tow was not in ‘light ballast condition’ and further denied that the Claimant has established that, even if there was any excess ballast, such excess was the causes of delay or the consumption of extra fuel.

Furthermore, the Defendant argued that the slow progress of the convoy at an average speed of 3.54 knots was a breach of an implied obligation of the Claimant under the Towcon (or otherwise the collateral warranty given by the Claimant) that the convoy would maintain an average speed of 4.5 knots. The Defendant counterclaimed damages of USD 529,455.12 in this respect.

The Definition of ‘In Light Ballast Condition’

The Court considered the meaning of ‘in light ballast condition’ and which party should be liable for the slow progress of the Tow. Both parties based their interpretation of ‘in light ballast condition’ on the case of Ease Faith Ltd v Leonis Marine Management Ltd [2006] 1 Lloyd’s Rep 673, which was the only authority on the meaning of the term.

The Claimant’s interpretation was based on the following words set out by the Court in the above case:

“the minimum ballast that will enable the particular vessel to proceed safely and in a seaworthy condition on her intended voyage”.

The Claimants set out that this translated to a requirement on the Defendant to ensure that the vessel had minimum ballast weight that could safely be required by the Tow.

The Defendants relied on the following differently phrased paragraph in the same Court case:

“At its simplest it comes to this: ballast is any material placed on board the vessel to add weight and the reference to ‘light’ refers to the least amount of ballast with which the vessel can safely and properly proceed on her voyage”.

The Defendants argued that the use of the word ‘properly’ meant that the Tow should be legally fit for the voyage. Therefore, a requirement that the voyage be insured, which included an obligation that the ballast condition of the tow be in accordance with whatever draught and displacement conditions the marine warranty surveyor deemed necessary and within the vessel’s Class. As different surveyors would have different approaches, the Defendant was of the view that GLND’s Singapore office would likely take a more relaxed view of ballast requirements than for example the Egypt office.

However, the Court agreed with the Claimant’s interpretation of ‘in light ballast condition’ and confirmed that the use of this phrase intended to ensure physical fitness and stability of the voyage, a requirement to protect the Claimant as the Tug Owner. The Court did not consider the wishes of a third party to be relevant to the test.

With regards to the matter of repudiatory breach, the Claimant argued that the Defendant’s refusal to proceed with the Tow at Singapore amounted to a repudiatory breach of the Towcon, which the Claimant then accepted with their email of 23.03.2013.

The Defendants argued that the email of 23.03.2013 was itself a repudiatory breach, which the Defendant accepted in reply.

The Court did not find the Defendants refusal to proceed with the Tow whilst at Singapore sufficient to amount to a repudiation of the Towcon. A delay of just two days (between 21.03.13 when the Defendant refused to proceed voyage and 23.03.13 when the email was sent) was not significant in the context of the towage. Furthermore, even if the Defendant was in repudiatory breach, the email of 23.03.2013 could not be read as an acceptance of such repudiation. However, Claimant had not intended to accept a repudiatory breach but had instead claimed to be exercising a contractual termination provision. The Court went on to say that the ‘reasonable reader’ would understand the email of 23.03.2013 to be the Claimant’s refusal to perform the Towcon, without giving proper notice as required under the Towcon.

The Court concluded that the Claimant had wrongfully repudiated the Towcon with their email of 23.03.2013 to the Defendant which was not in accordance with the Towcon terms having given a back-dated notice of cancellation, which the Defendant had accepted by response to the email. The Defendant was entitled to recover damages for the costs of engaging an alternative tug to complete the voyage in the sums of USD 450,000 and SGD 70,546.67.

Our Observations

This case has further clarified the meaning of the phrase ‘in light ballast condition’ with relation to the Towcon. Furthermore, it has made clear that parties should take care when issuing notice for the termination of a contract. The premature termination of a contract can have dire consequences, resulting in the repudiatory breach of the contract and held liable for damages.

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