UK Case law: SK Shipping Europe PLC v. (3) Capital VLCC 3 Corp and (5) Capital Maritime and Trading Corp (C Challenger) [2020] EWHC 3448 (Comm)

Affirmation of contract by conduct

The MV C Challenger (the “Vessel”), entered with the Standard Club by her owners, SK Shipping Europe (“Owners”), was chartered on two-year time charter by Capital VLCC 3 Corp (“Charterers”), on amongst others, the basis of a warranty provided by the Owners regarding the Vessel’s bunker consumption. 

The charter commenced in February 2017. As early as March 2017, the Charterers complained that the Vessel was consuming much more fuel than warranted in the charter. The overconsumption issues persisted, but the Charterers continued to make use of the Vessel and only elected to terminate the charter and redeliver the Vessel early in October 2017. 

In turn, the Owners contended that the Charterers had acted unlawfully and sought damages for breach of charter. In reply, the Charterers argued that the Owners misrepresented the Vessel’s consumption and, as a result, they had a right to rescind the contract on the basis of fraudulent misrepresentation and/or to terminate the contract for repudiatory breach. 

The court decided that the mere offer of a speed and consumption warranty by a shipowner should not be held to involve an implicit representation as to the Vessel’s actual performance levels. 

Moreover, it was held that the Charterers, by deciding to continue to use the Vessel’s services up to October 2017, affirmed the contract by conduct, despite the fact that they had consistently reserved their rights. 

The court decided that a reservation of rights often will have the effect of preventing subsequent conduct from constituting an election to keep the contract alive, but this is not an invariable rule. In particular, a reservation of rights is likely to prevent a party from being deemed to have affirmed the contract whilst performing its own obligations thereunder or seeking information from its counterparty. By contrast, where the innocent party demands substantial contractual performance from the other, this is unlikely to be prevented from being treated as an affirmation simply because the innocent party has reserved its rights.

The court concluded that the Charterers had knowledge of their right to rescind from very early on but nonetheless made an unequivocal choice to keep the contract alive. The Charterers were held to be in repudiatory breach of the contract by terminating early, thereby, entitling Owners to claim damages for loss of hire / future earnings for the balance of the charter period together with outstanding hire.

The judgment can be found here and full commentary here.

Category: Caselaw