14/03/2013

BP Oil International Limited v Target Shipping Limited

In 2010, BP chartered the “Target” to carry a cargo of 112,000 mt fuel oil from Odessa to Texas, which she did safely and well. BP’s standard charterparty form provided a mechanism by which, where the charterparty provided for a minimum quantity (here 80,000 mt), an overage discount could be applied to freight. The fixture recap provided that freight should be payable on the basis for “Worldscale 135”, for discharge in the US Gulf. It also stated that there should be “Overage 50 pct” 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 US$1,015,000, 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 in contrast argued that the basic freight rate of Worldscale 135 applied to cargo carried above the minimum quantity and the parties had never agreed that nil freight would be due on such cargo.

Andrew Smith J 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.

Longmore LJ, giving the lead judgment for the Court of Appeal, rejected both BP’s arguments and Andrew Smith J’s construction. BP’s argument was wrong because it “confuses the absence of specification the with the specification of zero.” The judge’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 lacuna in respect of freight. The Owners were right that Worldscale 135 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, 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.

 

Owners were represented by Steven Berry QC from Essex Court Chambers and Thomas Raphael from 20 Essex Street, instructed by Lax & Co LLP.