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Court Ponders Impact of High Seas Piracy on Charterparty

In a significant decision for the shipping industry, the High Court has ruled that a vessel owner’s insistence that it had the right to refuse to sail through the Gulf of Aden – where piracy was known to be rampant – did not amount to a repudiatory breach of contract.

A company had chartered a newly-built bulk carrier for three years after making it plain that the vessel’s ability to voyage through the Gulf was ‘a deal breaker’. However, the owner informed the charterers before the vessel’s maiden voyage that it retained the right to refuse passage through the piracy-plagued waters.

The charterers treated that statement as an anticipatory breach of the charterparty on the basis that they were entitled to ‘give orders’ for the vessel to transit the Gulf. The owner argued that it was entitled to withhold consent to such voyages. Arbitrators subsequently found in favour of the owner and directed the charterers to pay damages in excess of $6.5 million.

In dismissing the charterers’ appeal, the Court noted that the owner was obliged to obtain permission from the vessel’s head owners before it could sanction voyages through the Gulf. The owner had not, by its words or conduct, evinced any intention not to perform, or expressly declared that it would be unable to perform, its obligations under the charterparty.

The owner’s conduct amounted to no more than an assertion that its consent was required and the charterers’ case, at its highest, was that it was possible that, on some occasions, such consent might not have been forthcoming. Such a conclusion was ‘essentially speculative’ and did not afford grounds for terminating the contract.