A recent judgment of the English courts clarified how contractual terms in charterparties are to be interpreted in relation to background, context, wording and commercial common sense and held that the particular contractual obligation to maintain a vessel’s classification status and certificates was absolute in nature.

In Silverburn Shipping (IoM) Ltd v Ark Shipping Co LLC[1], the court dealt with an appeal against a partial final award of a London Maritime Arbitrators Association (LMAA) tribunal. The Owners of the mv Arctic had bareboat chartered the vessel to the Charterers for 15 years on an amended BARECON ’89 form. Clause 9A of the charterparty provided that: “The Charterers shall maintain the Vessel, her machinery, boilers, appurtenances and spare parts in a good state of repair…and they shall keep the Vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times.”

During the course of the charterparty, the vessel’s class certificates expired. The Owners terminated the charterparty, partly on this basis, and demanded that the Charterers redeliver the vessel to the Owners. The Charterers resisted the demand, denying that there had been any breach of the charterparty or that the vessel had factually been out of class.

One of the key issues to be determined by the court was whether the obligation to have the Vessel’s classification certificates up to date at all times was an absolute obligation or an intermediate obligation (requiring the Charterers to reinstate expired class certificates “within a reasonable time”).

The court confirmed the approach to be adopted by courts (and presumably other legal forums) when interpreting contractual terms in charterparties:

1.     A court should identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean;

2.     It does so by focusing on the meaning of the relevant words in their documentary, factual and commercial context;

3.     That meaning has to be assessed in the light of the natural and ordinary meaning of the clause, any other relevant provisions of the contract, the overall purpose of the clause and the contract, the facts and circumstances known or assumed by the parties at the time that the document was executed and commercial common sense, but disregarding any subjective evidence of the parties’ intention;

4.     While commercial common sense is a very important factor to be taken into account, a court should be slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed to; and

5.     The meaning of a clause is usually most obviously to be gleaned from the language of the provision.

The court considered the meaning of Clause 9A of the charterparty and held that it contained two distinct obligations: firstly, an obligation to maintain the vessel (which was an intermediate obligation requiring the exercise of due diligence) and, secondly, an absolute obligation to keep the vessel with unexpired classification and with other required certificates in force at all times. The question of a vessel’s classification status was judged as a question of fact: the vessel was either in class or it was not.

The court found that the vessel’s class certificates had expired and that the Charterers had breached their absolute obligation to ensure that the vessel remained in class. The court ordered that, in principle, the tribunal’s award should be varied to reflect that the Owners were entitled to terminate the charterparty and were entitled to redelivery of the vessel.

In practice, it is not always as simple to determine whether a vessel is factually in class or not as in this judgment. The expiry of certain class certificates does not always result in the automatic suspension of a vessel’s class. The vessel’s classification society’s rules may provide that a failure to timeously renew certain class certificates may result in the vessel being subject to a class suspension procedure (where the class surveyor may recommend that the vessel remain in class) rather than an automatic withdrawal of class.

The judgment confirms the importance of the correct approach to the interpretation of contractual terms. The judgment underscores the importance of complying with an absolute obligation – in this case, an obligation to keep a vessel in class.