Appeal Court allows shipowner’s claim for freight entitlement

March 2013

Court of Appeal (Civil Division), 14 March 2013, BP Oil International Limited v Target Shipping Limited

The Court of Appeal in London has upheld the entitlement of a shipowner to full freight in respect of an entire oil cargo transported under a charter party which provided for a minimum quantity and included an 'overage' discount.

In 2010, BP chartered the Target to carry a cargo of 112,000 mt of fuel oil from Odessa to Texas. The voyage was completed safely and efficiently. BP's standard charter party form provided a mechanism by which, where the charter party provided for a minimum quantity (in this case 80,000 mt), an 'overage' discount could be applied to freight.

The fixture recap provided that freight should be payable on the basis of Worldscale 135, for discharge in the US Gulf. It also stated that there should be 'overage 50 per cent' for discharge in the Mediterranean. But the fixture recap contained no express specification in respect of an overage discount for cargo carried to other destinations, such as the US Gulf.

Owners invoiced BP on the basis of full freight at Worldscale 135 for the whole cargo without any discount or reduction for overage, and BP paid this. Subsequently, however, BP tried to reclaim the freight paid on the 32,000 mt of cargo above the minimum, about $1.02m, on the basis that it had paid this extra freight under a mistake.

BP's argument was 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 basic freight rate of Worldscale 135 applied to cargo carried above the minimum quantity and that the parties had never agreed that nil freight would be due on such cargo.

Andrew J Smith at first instance rejected both parties' constructions. He concluded that there was a lacuna in respect of the freight rate to be charged on cargo above the minimum, which was to be filled by the implication of a term providing for a reasonable freight.

When the case came before the Court of Appeal, Lord Justice Longmore, in his lead judgment, rejected both BP’s arguments and the court of first instance construction. BP's argument was wrong, he said, because it "confuses the absence of specification with the specification of zero." He added that Andrew J Smith's middle way was wrong because it was inherently unlikely in a contract of this nature that the parties would have allowed there to be a lacuna in respect of freight. The owners were right that the agreed freight rate of Worldscale 135 applied to all the cargo for the relevant voyage: "That is, to my mind, the natural construction of the recap and the printed form of BPVoy4 when construed together," said Lord Justice Longmore, "and is, no doubt, why BP paid the invoice when it was submitted."

The Court of Appeal therefore allowed the appeal and dismissed BP's claim.

Target Shipping Ltd was represented by Lax & Co, London.

Issued by

Robert Pollock-Hill
Lax & Co LLP
Dir: +44 (0) 20 7397 0543

December 18th, 2015

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