Tanker owner's appeal allowed in overage case

May 23 2013

Where a charterparty provides for a minimum quantity of cargo to be loaded but no overage is specified in respect of a particular discharge range, the agreed Worldscale (WS) rate shall apply to all the cargo carried, including freight loaded above the minimum quantity.**

This was the effect of a decision of the English Court of Appeal in March 2013, upholding the appeal of the owners of the Aframax tanker Target against a claim brought by charterers for the return of freight allegedly overpaid by mistake.*

In February 2010, BP Oil International chartered the Target from Target Shipping on the BPVoy 4 form (as amended) to carry a cargo of 112,000 tonnes of fuel oil from Odessa in the Black Sea with a number of discharge options, including 1-2 ports Euromed, USAC and US Gulf.

The charterparty and the recap contained a mechanism by which, in instances where a minimum quantity was specified (in this case 80,000 tonnes), freight would be charged at an agreed WS rate and any freight loaded above the minimum quantity would be charged at an ‘overage’ rate.

The fixture recap provided that freight would be payable at various WS rates for discharge in the Euromed, USAC, Caribs and USG ranges. It also stated that there should be ‘overage 50% applicable for Euromed discharge only’. The fixture recap contained no express specification for overage in the event of discharge in the other ranges.

During the course of the voyage, BP ordered the vessel to discharge at Galveston and Houston, which it duly did without incident. Following discharge of the cargo, owners invoiced BP on the basis of the full amount of cargo carried at WS135 (which was the agreed WS rate for a US Gulf discharge) without any reference to an overage rate. BP paid the invoice in full.

Following payment, however, BP claimed that it should have paid freight only on the minimum quantity of 80,000 tonnes and that no freight was payable in respect of the additional 32,000 tonnes of cargo above the minimum. BP issued proceedings for the freight paid on the cargo carried over the minimum quantity (about $1.02 mill), alleging that it had overpaid by mistake.

BP claimed that the absence of specification in respect of overage for the US Gulf meant that no freight was due on cargo carried above the minimum quantity to the US Gulf. Owners, meanwhile, argued that the absence of a provision for overage meant that the basic freight rate of WS135 applied to the whole cargo carried, including cargo carried above the minimum quantity, and that the parties had never agreed that nil freight would be due on such cargo.


Constructions rejected

At first instance, Andrew Smith J rejected both parties' constructions. He concluded that there had been no agreement between the parties as to what the rate should be payable on cargo carried to the US Gulf above the minimum quantity and therefore there was a lacuna in the agreement that needed to be filled. He held that owners were entitled to overage freight in a reasonable sum and that BP would be entitled to recover any amount that it had paid above such a reasonable sum. Both parties appealed to the Court of Appeal on the issue of construction.

The Court of Appeal rejected both BP's and the trial judge’s arguments on construction. In giving the main judgment of the court, Lord Justice Longmore (with whom Ward and Moses LJJ both agreed) held that BP’s argument on construction was wrong because:

1) The pro-forma charter party form had provided that, in the absence of any agreement to the contrary, the parties had agreed that overage was to be 50% of the freight rate. BP accepted that if nothing had been said at all about overage, and one was just dealing with the terms of the proforma charter party, then overage would still be payable; and

2) If the parties had wanted to agree that no freight would be payable on sums carried above the minimum quantity, they would have said so in terms. It would be surprising if, as BP argued, overage was only payable if discharge was in the Euromed but no freight would be payable on the amount carried above the minimum quantity where discharge was elsewhere. In other words, BP had confused the absence of specification with the specification of zero.

The Court of Appeal held that, once it found that BP’s construction was impossible, the only reliable alternative was owner’s construction that the agreed freight rate applied to all the cargo loaded for the voyage. "That is, to my mind, the natural construction of the recap and the printed form of BPVoy4 when construed together, and is, no doubt, why BP paid the invoice when it was submitted," said Lord Justice Longmore.

The Court of Appeal also rejected the trial judge’s approach to finding a middle way by ordering an inquiry as to what would be a reasonable freight for the overage cargo.

It held that, while finding a middle way between two potential constructions had some attraction, it amounted in this instance to making a contract that the parties had not made for themselves. Further, where the parties had gone to elaborate trouble and set out their agreement at some length, it was inherently unlikely that the parties had left a lacuna, which they required the court to fill.

Accordingly, owners were right that the agreed freight rate of WS135 applied to all the cargo for the relevant voyage. The Court of Appeal therefore allowed the appeal and dismissed BP's claim.


*Court of Appeal (Civil Division), 14 March 2013, BP Oil International Limited v Target Shipping Limited.
**This article was written by Robert Pollock-Hill, a partner with Lax & Co LLP, London.

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