Toptip Holding Pte Ltd v Mercuria Energy Trading Pte Ltd

• Judge: Steven Chong J
• Judgment Date: 01 September 2016
• Neutral Citation: [2016] SGHC 173
• Citation: [2016] SGHC 173
• Defendant Counsel: Tay Twan Lip Philip and Yip Li Ming (Rajah & Tann Singapore LLP)
• Published date: 06 December 2017
• Hearing Date: 19 May 2016,18 May 2016,11 July 2016,17 May 2016
• Plaintiff Counsel: Edgar Chin Ren Howe and Thio Soon Heng, Jonathan Mark (Incisive Law LLC)
• Date: 01 September 2016
• Court: High Court (Singapore)
• Docket Number: Suit No 1312 of 2014
• Subject Matter: Voyage charterparties,Admiralty and Shipping,Formation,Carriage of goods by sea,Contract

Steven Chong J: Introduction

It is said that the charter market, governed by the supply and demand for ships and shipping space, is about as perfect a market as one can find. A charterer who wishes to hire a vessel to transport cargo across the high seas knows that it is operating in a market in which freight rates fluctuate. But the charterer also knows that it has to assess the best freight it can obtain against a multitude of factors including the nature of the cargo, the extent to which it wants the charterparty to be “cargo friendly” rather than “shipowner friendly”, and the requirements of any underlying sale contract such as the date by which the cargo has to be loaded or delivered to the buyer. The last factor is particularly crucial as it places the charterer under the pressure of time. Even if the market is not in its favour, the charterer has to secure a charterparty with a suitable laycan (ie, the period of time from the earliest day to the latest day upon which the vessel can arrive at the loading port) or risk being in breach of the underlying sale contract. The shipowner, similarly, has to balance the security of a contract concluded in advance against the prospect that the freight market may rise in its favour, leading to a less profitable charterparty than one which its vessel could have otherwise secured. These factors assume an even greater significance in a situation such as in the present case where both the charterer and the owner have to time their contractual commitments on a back-to-back basis. The charterer has to secure a vessel which is acceptable to the shipper while the owner, which is often merely a disponent owner operating in the spot freight market, has to time the fixture of the vessel with the physical head owner in order to fulfil its obligation to the charterer. If the back-to-back fit does not materialise, this would usually give rise to losses and inevitably, legal proceedings.

It is in this commercial context that the parties to this present dispute entered into negotiations in October 2014 for a voyage charter to transport a shipment of iron ore pellets from Brazil to China. The deal, however, fell through and the essential question for determination in this trial is who should now bear the consequences of the aborted charter. The plaintiff, the putative charterer, claims that the defendant, the disponent owner of the vessel, entered into a binding charterparty via email, and that it breached this agreement by subsequently resiling from the contract in order to enter into an allegedly more profitable charter with another party. The plaintiff thus claims from the defendant the losses it suffered as a result of having to secure a substitute charterparty at a higher rate. The defendant, by contrast, contends that there was never a binding contract concluded, and that the breakdown of the negotiations was a result of the plaintiff’s own indolence. In any case, its position is that the charterparty was always subject to its review on account of an express “subject” clause; so the risk of the negotiations breaking down was firmly on the plaintiff. Thus, the key issue in this case is the nature and effect of this clause – “OTHERWISE SUB REVIEW OF CHTRS PFMA CP WITH LOGICAL AMENDMENT” – in the context in which the parties conducted their negotiations. There is also a consequent question as to whether the right of review under the clause was unqualified or had to be exercised in good faith.

In determining the true effect of the “subject” clause, it is necessary to trace the circumstances which led to its introduction, how the parties objectively perceived its effect and the commercial consequences of the competing interpretations to the clause given by the parties. In undertaking this exercise, it is also useful to examine the judicial interpretations which have been given to similarly worded “subject” clauses with the caveat that differences in wording may lead to a different interpretation and consequently, a different outcome.

Facts

The plaintiff is a Singapore incorporated company trading in bulk commodities, including iron ore.¹ The defendant is the Singapore subsidiary of a global energy and commodity group engaged, inter alia, in the chartering of dry cargo such as iron.² It does not own any vessels itself, but secures vessels as disponent owner to be chartered onwards.

On 10 October 2014, the plaintiff entered into a f.o.b. sale contract for the purchase of approximately 170,000 metric tonnes of iron ore pellets (“the goods”) from the seller, Samarco Mineraco S.A. (“Samarco”). The goods were to be shipped from the Ponta Ubu port in Brazil to ports in China, with a laycan of 21 to 30 November 2014.³

Email correspondence on 13 and 14 October 2014

To charter a vessel to transport the goods, the plaintiff sent an email enquiry to a ship chartering broker, Mr Shu Changhong (“Mr Shu”) on 13 October 2014 (“the Toptip Enquiry”).⁴ The Toptip Enquiry enumerated the plaintiff’s requirements for the charter including the expected laycan, the deadline for the nomination of a vessel, the ports of loading and discharge, the details of the cargo to be loaded, the governing law and the forum for dispute resolution, amongst other terms.⁵ The clauses relating to the freight rate and demurrage were left to be filled in by the defendant. Also attached was part of the f.o.b. sale contract which stipulated the shipping and loading terms which needed to be incorporated into the charterparty (“the Samarco terms”).⁶ Crucially, the Toptip Enquiry concluded as follows: “OTHERWISE AS PER VALE CP AS ATTACHED WITH LOGICAL AMENDMENT”. This proviso was a proposal by the plaintiff through Mr Shu for the charterparty to be based on the pro forma charterparty of Vale S.A. (“the Vale pro forma CP”), one of the world’s largest producers of iron ore.⁷

On the same day, Mr Shu forwarded the Toptip Enquiry to the defendant via email. This email opened with the line, “PLS KINDLY CHECK THE BELOW FIRM ENQIRY AND REPLY US BEFORE 1700HRS 14 OCTOBER 2014 SINGAPORE TIME”. It then set out the requirements for the charterparty as per the Toptip Enquiry before concluding: “Invite owners best freight for fixing”.⁸

The defendant, after reviewing Mr Shu’s email, replied the next day, on 14 October 2014 (“the Mecuria Bid”). The Mecuria Bid substantially repeated the terms as set out in the Toptip Enquiry, with the freight rates and demurrage clauses filled in. The relevant text of the Mecuria Bid is as follows:⁹

Mecuria would like to offer firm bss following terms.

…

-FREIGHT RATE: USD 18.40 PMT BSS BELUN(OR ZHOUSHAN) PLUS NANTONG

…

-DEMM 15,000 USD PD PR. DHD

…

-OTHERWISE SUB REVIEW OF CHTRS PFMA CP WITH LOGICAL AMENDMENT

END

[emphasis added in bold]

Apart from the inclusion of the freight rate and demurrage, the only difference between the terms of the Toptip Enquiry and the Mecuria Bid was the change of the final proviso from “OTHERWISE AS PER VALE CP AS ATTACHED WITH LOGICAL AMENDMENT” to “OTHERWISE SUB REVIEW OF CHTRS PFMA CP WITH LOGICAL AMENDMENT” (“the Subject Review clause”). As noted earlier, the nature and effect of the Subject Review clause lies at the heart of this dispute. Another fact which the defendant highlights is that it did not attach the Samarco terms to the email containing the Mecuria Bid.

Mr Shu immediately forwarded the Mecuria Bid to the plaintiff which “confirm[ed] to accept [the] bid”.¹⁰ Mr Shu then sent a closing email to the defendant: “We confirm the acceptance of your offer. Thanks for your business!”¹¹ The defendant’s head of dry chartering, Mr Sanjeev Gupta (“Mr Gupta”), was copied to this closing email dated 14 October 2014 from Mr Shu to the defendant.

Subsequent correspondence between the parties Provision of Australian cargo charterparty by the defendant on 16 October 2016

Following the above correspondence on 13 and 14 October 2014, Mr Shu sent a follow up email on 16 October 2014 to the defendant’s point of contact, Mr Sanghwa Lee (“Mr Lee”), requesting for “the working CP in word format”.¹² Mr Lee immediately replied that the defendant did not have such a working charterparty, and was instead “waiting for chtrs PFMA CP for [the defendant’s] review”.¹³

Subsequently, Mr Gupta, who was copied in the above exchange, sent an email to both Mr Shu and Mr Lee asking two questions: (a) whether Mr Lee had a copy of a previous charterparty, for the carriage of similar cargo from Australia to China, which the plaintiff and the defendant had concluded several months earlier in July 2014 (“the Australian Cargo CP”); and (b) whether that could be used as a base.¹⁴ Mr Lee then sent the Australian Cargo CP to Mr Shu via email on the same day, 16 October 2014.

The parties dispute the circumstances preceding this email correspondence on 16 October 2014, and the reason why the Australian Cargo CP was sent by the defendant to Mr Shu. This factual dispute will be examined in detail below (see [41] below). In brief, the plaintiff asserts that Mr Gupta had consented, over the phone, to the use of the Australian Cargo CP as the charterer’s pro forma charterparty (“the charterer’s pro forma CP”). Therefore, the defendant had lifted or waived the Subject Review clause by providing Mr Shu with the Australian Cargo CP on 16 October 2014. The defendant, on the other hand, disputes this account of the facts, and contends that the document had been provided to Mr Shu on his request and as a mere favour because he did not have any charterparty template in Microsoft Word format to work on.

Draft charterparty prepared by broker: 24 and 27 October 2014

After receiving the Australian Cargo CP, amendments were made to the document by Mr Shu based on the main terms contained in the Mecuria Bid. This draft charterparty was dated 14 October 2014 and sent by one of Mr Shu’s employees to both the plaintiff and the defendant for their comments vi...