From e4015341839898d41c3ca4895805923d04110530 Mon Sep 17 00:00:00 2001 From: David McKee Date: Fri, 22 Nov 2024 14:52:56 +0000 Subject: [PATCH 01/14] Add a failing test for difficult documents --- src/tests/replacer_tests/test_make_replacements.py | 7 +++++++ 1 file changed, 7 insertions(+) diff --git a/src/tests/replacer_tests/test_make_replacements.py b/src/tests/replacer_tests/test_make_replacements.py index 56818b5fa..f9e335bb8 100644 --- a/src/tests/replacer_tests/test_make_replacements.py +++ b/src/tests/replacer_tests/test_make_replacements.py @@ -1,5 +1,6 @@ from pathlib import Path +import lxml.etree import pytest from replacer.make_replacments import ( @@ -13,6 +14,12 @@ class TestMakePostHeaderReplacements: + def test_make_failing_post_header_replacements(self): + original_file_content = open(f"{FIXTURE_DIR}/broken.xml", encoding="utf-8").read() + replacement_content = open(f"{FIXTURE_DIR}/broken.txt", encoding="utf-8").read() + content_with_replacements = make_post_header_replacements(original_file_content, replacement_content) + lxml.etree.fromstring(content_with_replacements.encode("utf-8")) + def test_make_post_header_replacements(self): original_file_content = open(f"{FIXTURE_DIR}/ewhc-ch-2023-257_original.xml", encoding="utf-8").read() replacement_content = open(f"{FIXTURE_DIR}/ewhc-ch-2023-257_replacements.txt", encoding="utf-8").read() From e702d2de31bf174433eb93355d009924d948b9ea Mon Sep 17 00:00:00 2001 From: David McKee Date: Fri, 22 Nov 2024 17:31:12 +0000 Subject: [PATCH 02/14] Add an early failure for invalid XML --- src/replacer/make_replacments.py | 3 +++ 1 file changed, 3 insertions(+) diff --git a/src/replacer/make_replacments.py b/src/replacer/make_replacments.py index 3f0c8f0b8..a5160d488 100644 --- a/src/replacer/make_replacments.py +++ b/src/replacer/make_replacments.py @@ -72,6 +72,9 @@ def make_post_header_replacements( full_replaced_text_content = pre_header + end_header_tag + replaced_post_header_content + # raises an lxml.etree.XMLSyntaxError if the output is not valid XML + lxml.etree.fromstring(full_replaced_text_content.encode("utf-8")) + return DocumentAsXMLString(full_replaced_text_content) From ae346a3ae05329fd2e06686c683413601af26dfb Mon Sep 17 00:00:00 2001 From: David McKee Date: Fri, 22 Nov 2024 17:44:17 +0000 Subject: [PATCH 03/14] replace_string_with_tag --- src/replacer/make_replacments.py | 1 + src/replacer/replacer_pipeline.py | 4 +- .../replacer_tests/test_make_replacements.py | 6 +-- src/utils/proper_xml.py | 37 ++++++++++++++++++ src/utils/tests/test_proper_xml.py | 38 ++++++++++++++++++- 5 files changed, 81 insertions(+), 5 deletions(-) diff --git a/src/replacer/make_replacments.py b/src/replacer/make_replacments.py index a5160d488..fb77639df 100644 --- a/src/replacer/make_replacments.py +++ b/src/replacer/make_replacments.py @@ -65,6 +65,7 @@ def make_post_header_replacements( str: The modified legal document content with the replacement applied. """ cleaned_file_content = sanitize_judgment(original_content) + pre_header, end_header_tag, post_header = split_text_by_closing_header_tag(cleaned_file_content) replaced_post_header_content = apply_replacements(post_header, replacement_patterns) diff --git a/src/replacer/replacer_pipeline.py b/src/replacer/replacer_pipeline.py index 786d8cbbc..ec8b4fa03 100644 --- a/src/replacer/replacer_pipeline.py +++ b/src/replacer/replacer_pipeline.py @@ -41,8 +41,10 @@ def replacer_caselaw(file_data: XMLFragmentAsString, replacement: Replacement) - attribs["uk:year"] = year attribs["uk:origin"] = "TNA" replacement_string = create_tag_string("ref", html.escape(replacement[0]), attribs) + new = XMLFragmentAsString(str(file_data).replace(replacement[0], replacement_string)) + return new - return XMLFragmentAsString(str(file_data).replace(replacement[0], replacement_string)) + ### DRAGON: use utils.proper_xml.create_tag_string when creating. But for now, focus on making it not change attributes, only XML running text def replacer_leg(file_data: XMLFragmentAsString, replacement: Replacement) -> XMLFragmentAsString: diff --git a/src/tests/replacer_tests/test_make_replacements.py b/src/tests/replacer_tests/test_make_replacements.py index f9e335bb8..0bf101fe4 100644 --- a/src/tests/replacer_tests/test_make_replacements.py +++ b/src/tests/replacer_tests/test_make_replacements.py @@ -1,6 +1,5 @@ from pathlib import Path -import lxml.etree import pytest from replacer.make_replacments import ( @@ -17,8 +16,9 @@ class TestMakePostHeaderReplacements: def test_make_failing_post_header_replacements(self): original_file_content = open(f"{FIXTURE_DIR}/broken.xml", encoding="utf-8").read() replacement_content = open(f"{FIXTURE_DIR}/broken.txt", encoding="utf-8").read() - content_with_replacements = make_post_header_replacements(original_file_content, replacement_content) - lxml.etree.fromstring(content_with_replacements.encode("utf-8")) + + # this fails because we haven't started using ReplaceStringWithTag yet + make_post_header_replacements(original_file_content, replacement_content) def test_make_post_header_replacements(self): original_file_content = open(f"{FIXTURE_DIR}/ewhc-ch-2023-257_original.xml", encoding="utf-8").read() diff --git a/src/utils/proper_xml.py b/src/utils/proper_xml.py index c46b6253b..fd07f1ce3 100644 --- a/src/utils/proper_xml.py +++ b/src/utils/proper_xml.py @@ -5,6 +5,43 @@ "uk": "https://caselaw.nationalarchives.gov.uk/akn", } +XSLT_TEMPLATE = """ + + + + + + + + + + + + {replacement_tag} + + + + + + + + + + +""" + + +def replace_string_with_tag(xml: bytes, string: str, tag: str) -> bytes: + """ + Replace citations in running text, but not in XML attributes + This is probably quite inefficient, being called once per replacement! But we can make it better later + """ + root = lxml.etree.fromstring(xml) + stylesheet = lxml.etree.XML(XSLT_TEMPLATE.format(replaced_string=string, replacement_tag=tag)) + transformer = lxml.etree.XSLT(stylesheet) + output = transformer(root) + return lxml.etree.tostring(output) + def expand_namespace(namespaced_name: str) -> str: if ":" not in namespaced_name: diff --git a/src/utils/tests/test_proper_xml.py b/src/utils/tests/test_proper_xml.py index 3f03cb5fa..c79a332c9 100644 --- a/src/utils/tests/test_proper_xml.py +++ b/src/utils/tests/test_proper_xml.py @@ -1,7 +1,43 @@ import pytest from utils.compare_xml import assert_equal_xml -from utils.proper_xml import create_tag_string +from utils.proper_xml import create_tag_string, replace_string_with_tag + + +class TestReplaceStringWithTag: + def test_as_text(self): + assert_equal_xml( + replace_string_with_tag("

In [2024] UKSC 1 ...

", "[2024] UKSC 1", "blah"), + b'

In blah ...

', + ) + + def test_as_text_multi(self): + assert_equal_xml( + replace_string_with_tag( + "

[2024] UKSC 1[2024] UKSC 1

", + "[2024] UKSC 1", + "", + ), + b"

", + ) + + @pytest.mark.xfail + def test_as_text_multi_in_tag(self): + """Ideally, this should have - in the output; we could rerun until it runs clean""" + assert_equal_xml( + replace_string_with_tag("

[2024] UKSC 1 - [2024] UKSC 1

", "[2024] UKSC 1", ""), + b"

- [2024] UKSC 1

", + ) + + def test_as_attribute(self): + assert_equal_xml( + replace_string_with_tag( + "

In the previous judgment ...

", + "[2024] UKSC 1", + "blah", + ), + b'

In the previous judgment ...

', + ) def test_simple_tag(): From 9d4def59ab3e124c9bd1d0837cafaf68003c5120 Mon Sep 17 00:00:00 2001 From: David McKee Date: Fri, 22 Nov 2024 17:46:13 +0000 Subject: [PATCH 04/14] complicated -- add fixtures --- src/tests/fixtures/broken.txt | 147 ++ src/tests/fixtures/broken.xml | 3189 +++++++++++++++++++++++++++++++++ 2 files changed, 3336 insertions(+) create mode 100644 src/tests/fixtures/broken.txt create mode 100644 src/tests/fixtures/broken.xml diff --git a/src/tests/fixtures/broken.txt b/src/tests/fixtures/broken.txt new file mode 100644 index 000000000..1491ffc65 --- /dev/null +++ b/src/tests/fixtures/broken.txt @@ -0,0 +1,147 @@ +{"case": ["[1998] PIQR 324", "[1998] PIQR 324", "1998", "#", false]} +{"case": ["[2012] EWHC 3511 (QB)", "[2012] EWHC 3511 (QB)", "2012", "https://caselaw.nationalarchives.gov.uk/ewhc/qb/2012/3511", true]} +{"case": ["[2008] 1 Lloyd\u2019s Rep 96", "[2008] 1 Lloyd's Rep 96", "2008", "#", false]} +{"case": ["[1995] 2 Lloyd\u2019s Rep 225", "[1995] 2 Lloyd's Rep 225", "1995", "#", false]} +{"case": ["[1996] 2 Lloyd\u2019s Rep 84", "[1996] 2 Lloyd's Rep 84", "1996", "#", false]} +{"case": ["[1995] 2 Lloyd\u2019s Rep 225", "[1995] 2 Lloyd's Rep 225", "1995", "#", false]} +{"case": ["[1996] 2 Lloyd\u2019s Rep 84", "[1996] 2 Lloyd's Rep 84", "1996", "#", false]} +{"case": ["[2011] 1 Lloyds Rep 301", "[2011] 1 Lloyd's Rep 301", "2011", "#", false]} +{"case": ["[1973] 1 WLR 386", "[1973] 1 WLR 386", "1973", "#", false]} +{"case": ["[2013] 2 Lloyd's Rep 69", "[2013] 2 Lloyd's Rep 69", "2013", "#", false]} +{"case": ["[1948] 2 KB 153", "[1948] 2 KB 153", "1948", "#", false]} +{"case": ["[1986] Ch 80", "[1986] Ch 80", "1986", "#", false]} +{"case": ["[1947] K.B. 842", "[1947] KB 842", "1947", "#", false]} +{"case": ["[1947] K.B. 842", "[1947] KB 842", "1947", "#", false]} +{"case": ["[2013] 1 WLR 63", "[2013] 1 WLR 63", "2013", "#", false]} +{"case": ["[1957] 2 QB 401", "[1957] 2 QB 401", "1957", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1980] AC 827", "[1980] AC 827", "1980", "#", false]} +{"case": ["[1987] QB 527", "[1987] QB 527", "1987", "#", false]} +{"case": ["[1963] 2 QB 104", "[1963] 2 QB 104", "1963", "#", false]} +{"case": ["[1953] 1 QB 86", "[1953] 1 QB 86", "1953", "#", false]} +{"case": ["[1961] 1 WLR 1124", "[1961] 1 WLR 1124", "1961", "#", false]} +{"case": ["[1962] 1 WLR 117", "[1962] 1 WLR 117", "1962", "#", false]} +{"case": ["[1962] AC 600", "[1962] AC 600", "1962", "#", false]} +{"case": ["[1919] 2 KB 305", "[1919] 2 KB 305", "1919", "#", false]} +{"case": ["[1921] 3 KB 420", "[1921] 3 KB 420", "1921", "#", false]} +{"case": ["[1949] AC 76", "[1949] AC 76", "1949", "#", false]} +{"case": ["[1971] 1 QB 488", "[1971] 1 QB 488", "1971", "#", false]} +{"case": ["[1921] 1 AC 376", "[1921] 1 AC 376", "1921", "#", false]} +{"case": ["[1921] 1 AC 376", "[1921] 1 AC 376", "1921", "#", false]} +{"case": ["[1973] 1 W.L.R. 386", "[1973] 1 WLR 386", "1973", "#", false]} +{"case": ["[1973] 1 W.L.R. 386", "[1973] 1 WLR 386", "1973", "#", false]} +{"case": ["[1976] 2 Lloyd\u2019s Rep 192", "[1976] 2 Lloyd's Rep 192", "1976", "#", false]} +{"case": ["[1972] 2 Lloyd\u2019s Rep. 465", "[1972] 2 Lloyd's Rep 465", "1972", "#", false]} +{"case": ["[1974] 2 Lloyd\u2019s Rep. 241", "[1974] 2 Lloyd's Rep 241", "1974", "#", false]} +{"case": ["[1921] 3 K.B. 420", "[1921] 3 KB 420", "1921", "#", false]} +{"case": ["[1972] 2 Lloyd\u2019s Rep. 465", "[1972] 2 Lloyd's Rep 465", "1972", "#", false]} +{"case": ["[1974] 2 Lloyd\u2019s Rep. 241", "[1974] 2 Lloyd's Rep 241", "1974", "#", false]} +{"case": ["[1921] 3 K.B. 420", "[1921] 3 KB 420", "1921", "#", false]} +{"case": ["[1977] AC 850", "[1977] AC 850", "1977", "#", false]} +{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} +{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} +{"case": ["[1942] 2 K.B. 65", "[1942] 2 KB 65", "1942", "#", false]} +{"case": ["[1942] 2 K.B. 65", "[1942] 2 KB 65", "1942", "#", false]} +{"case": ["[1979] 1 WLR 1018", "[1979] 1 WLR 1018", "1979", "#", false]} +{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} +{"case": ["[1977] A.C. 850", "[1977] AC 850", "1977", "#", false]} +{"case": ["[1971] 1 Q.B. 488", "[1971] 1 QB 488", "1971", "#", false]} +{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} +{"case": ["[1977] A.C. 850", "[1977] AC 850", "1977", "#", false]} +{"case": ["[1971] 1 Q.B. 488", "[1971] 1 QB 488", "1971", "#", false]} +{"case": ["[1981] 1 WLR 314", "[1981] 1 WLR 314", "1981", "#", false]} +{"case": ["[1980] 1 Lloyd\u2019s Rep. 545", "[1980] 1 Lloyd's Rep 545", "1980", "#", false]} +{"case": ["[1980] A.C. 827", "[1980] AC 827", "1980", "#", false]} +{"case": ["[1980] 1 Lloyd\u2019s Rep. 545", "[1980] 1 Lloyd's Rep 545", "1980", "#", false]} +{"case": ["[1980] A.C. 827", "[1980] AC 827", "1980", "#", false]} +{"case": ["[1980] AC 827", "[1980] AC 827", "1980", "#", false]} +{"case": ["[1978] AC 904", "[1978] AC 904", "1978", "#", false]} +{"case": ["[1983] 2 AC 694", "[1983] 2 AC 694", "1983", "#", false]} +{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} +{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} +{"case": ["[1985] 1 AC 191", "[1985] 1 AC 191", "1985", "#", false]} +{"case": ["[2012] 2 AC 164", "[2012] 2 AC 164", "2012", "#", false]} +{"case": ["[2010] 1 Lloyd\u2019s Rep 87", "[2010] 1 Lloyd's Rep 87", "2010", "#", false]} +{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} +{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} +{"case": ["[1962] 2 QB 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1981] 1 WLR 711", "[1981] 1 WLR 711", "1981", "#", false]} +{"case": ["[1980] 1 Lloyd\u2019s Rep 294", "[1980] 1 Lloyd's Rep 294", "1980", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1976] Q.B. 44", "[1976] QB 44", "1976", "#", false]} +{"case": ["[1976] 1 W.L.R. 989", "[1976] 1 WLR 989", "1976", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1978] 2 Lloyd\u2019s Rep. 73", "[1978] 2 Lloyd's Rep 73", "1978", "#", false]} +{"case": ["[1954] 2 Lloyd\u2019s Rep. 198", "[1954] 2 Lloyd's Rep 198", "1954", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1976] Q.B. 44", "[1976] QB 44", "1976", "#", false]} +{"case": ["[1976] 1 W.L.R. 989", "[1976] 1 WLR 989", "1976", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1978] 2 Lloyd\u2019s Rep. 73", "[1978] 2 Lloyd's Rep 73", "1978", "#", false]} +{"case": ["[1954] 2 Lloyd\u2019s Rep. 198", "[1954] 2 Lloyd's Rep 198", "1954", "#", false]} +{"case": ["[1978] 2 Lloyd\u2019s Rep 109", "[1978] 2 Lloyd's Rep 109", "1978", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1978] A.C. 904", "[1978] AC 904", "1978", "#", false]} +{"case": ["[1978] A.C. 904", "[1978] AC 904", "1978", "#", false]} +{"case": ["[1978] 2 Lloyd\u2019s Rep. 109", "[1978] 2 Lloyd's Rep 109", "1978", "#", false]} +{"case": ["[1978] 2 Lloyd\u2019s Rep. 109", "[1978] 2 Lloyd's Rep 109", "1978", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1976] Q.B. 44", "[1976] QB 44", "1976", "#", false]} +{"case": ["[1976] 1 W.L.R. 989", "[1976] 1 WLR 989", "1976", "#", false]} +{"case": ["[1976] Q.B. 44", "[1976] QB 44", "1976", "#", false]} +{"case": ["[1976] 1 W.L.R. 989", "[1976] 1 WLR 989", "1976", "#", false]} +{"case": ["[2001] 2 Lloyd\u2019s Rep 65", "[2001] 2 Lloyd's Rep 65", "2001", "#", false]} +{"case": ["[1978] AC 904", "[1978] AC 904", "1978", "#", false]} +{"case": ["(1841) 1 QB 389", "(1841) 1 QB 389", "1841", "#", false]} +{"case": ["[2006] 1 Lloyd\u2019s Rep 599", "[2006] 1 Lloyd's Rep 599", "2006", "#", false]} +{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} +{"case": ["[1981] 2 Lloyd\u2019s Rep. 1", "[1981] 2 Lloyd's Rep 1", "1981", "#", false]} +{"case": ["[1981] 1 W.L.R. 711", "[1981] 1 WLR 711", "1981", "#", false]} +{"case": ["[1977] 1 Lloyd\u2019s Rep. 315", "[1977] 1 Lloyd's Rep 315", "1977", "#", false]} +{"case": ["[1977] A.C. 850", "[1977] AC 850", "1977", "#", false]} +{"case": ["[1984] 2 Lloyd\u2019s Rep. 235", "[1984] 2 Lloyd's Rep 235", "1984", "#", false]} +{"case": ["[1985] A.C. 191", "[1985] AC 191", "1985", "#", false]} +{"case": ["[1981] 2 Lloyd\u2019s Rep. 1", "[1981] 2 Lloyd's Rep 1", "1981", "#", false]} +{"case": ["[1981] 1 W.L.R. 711", "[1981] 1 WLR 711", "1981", "#", false]} +{"case": ["[1977] 1 Lloyd\u2019s Rep. 315", "[1977] 1 Lloyd's Rep 315", "1977", "#", false]} +{"case": ["[1977] A.C. 850", "[1977] AC 850", "1977", "#", false]} +{"case": ["[1984] 2 Lloyd\u2019s Rep. 235", "[1984] 2 Lloyd's Rep 235", "1984", "#", false]} +{"case": ["[1985] A.C. 191", "[1985] AC 191", "1985", "#", false]} +{"case": ["[2009] 1 Lloyds Rep 461", "[2009] 1 Lloyd's Rep 461", "2009", "#", false]} +{"case": ["[1961] 2 Lloyd\u2019s Rep 478", "[1961] 2 Lloyd's Rep 478", "1961", "#", false]} +{"case": ["[1962] 2 QB 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1973] 2 Lloyd\u2019s Rep 53", "[1973] 2 Lloyd's Rep 53", "1973", "#", false]} +{"case": ["[1974] AC 235", "[1974] AC 235", "1974", "#", false]} +{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} +{"case": ["[1961] 2 Lloyd\u2019s Rep 478", "[1961] 2 Lloyd's Rep 478", "1961", "#", false]} +{"case": ["[1962] 2 QB 26", "[1962] 2 QB 26", "1962", "#", false]} +{"case": ["[1973] 2 Lloyd\u2019s Rep 53", "[1973] 2 Lloyd's Rep 53", "1973", "#", false]} +{"case": ["[1974] AC 235", "[1974] AC 235", "1974", "#", false]} +{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} +{"case": ["[1993] BCC 159", "[1993] BCC 159", "1993", "#", false]} +{"case": ["[1992] Ch 1", "[1992] Ch 1", "1992", "#", false]} +{"case": ["[1982] 1 Lloyd\u2019s Rep 562", "[1982] 1 Lloyd's Rep 562", "1982", "#", false]} +{"case": ["[1982] 1 WLR 848", "[1982] 1 WLR 848", "1982", "#", false]} +{"case": ["[1978] AC 904", "[1978] AC 904", "1978", "#", false]} +{"case": ["[2003] EWHC 725 (TCC)", "[2003] EWHC 725 (TCC)", "2003", "https://caselaw.nationalarchives.gov.uk/ewhc/tcc/2003/725", true]} +{"case": ["[1993] BCC 159", "[1993] BCC 159", "1993", "#", false]} +{"case": ["[1992] Ch 1", "[1992] Ch 1", "1992", "#", false]} +{"case": ["[1982] 1 Lloyd\u2019s Rep 562", "[1982] 1 Lloyd's Rep 562", "1982", "#", false]} +{"case": ["[1982] 1 WLR 848", "[1982] 1 WLR 848", "1982", "#", false]} +{"case": ["[1978] AC 904", "[1978] AC 904", "1978", "#", false]} +{"case": ["[2003] EWHC 725 (TCC)", "[2003] EWHC 725 (TCC)", "2003", "https://caselaw.nationalarchives.gov.uk/ewhc/tcc/2003/725", true]} +{"case": ["[2012] 1 Lloyd\u2019s Rep 87", "[2012] 1 Lloyd's Rep 87", "2012", "#", false]} +{"case": ["[1979] AC 757", "[1979] AC 757", "1979", "#", false]} +{"case": ["[1940] 3 All ER 60", "[1940] 3 All ER 60", "1940", "#", false]} +{"case": ["[1980] 1 WLR 277", "[1980] 1 WLR 277", "1980", "#", false]} +{"case": ["[1982] 1 Lloyd\u2019s Rep 570", "[1982] 1 Lloyd's Rep 570", "1982", "#", false]} +{"case": ["[2007] 2 AC 353", "[2007] 2 AC 353", "2007", "#", false]} +{"case": ["[1980] 1 Lloyd\u2019s Rep 75", "[1980] 1 Lloyd's Rep 75", "1980", "#", false]} +{"case": ["[2011] 2 Lloyd\u2019s Rep 360", "[2011] 2 Lloyd's Rep 360", "2011", "#", false]} +{"case": ["[2011] 2 Lloyd\u2019s Rep 370", "[2011] 2 Lloyd's Rep 370", "2011", "#", false]} +{"case": ["[1995] 1 Lloyd\u2019s Rep 142", "[1995] 1 Lloyd's Rep 142", "1995", "#", false]} +{"leg": ["Sale of Goods Act 1979", "http://www.legislation.gov.uk/id/ukpga/1979/54", "1979 c. 54"]} +{"leg": ["Sale of Goods Act 1979", "http://www.legislation.gov.uk/id/ukpga/1979/54", "1979 c. 54"]} +{"leg": ["Sale of Goods Act 1979", "http://www.legislation.gov.uk/id/ukpga/1979/54", "1979 c. 54"]} diff --git a/src/tests/fixtures/broken.xml b/src/tests/fixtures/broken.xml new file mode 100644 index 000000000..3fcd2a894 --- /dev/null +++ b/src/tests/fixtures/broken.xml @@ -0,0 +1,3189 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + EWHC-QBD-Commercial + 2015 + 718 + [2015] EWHC 718 (Comm) + 0.26.9 + 867bdfe8341ec9a6cb5646aab920c476f3afbe5895188958e5e3739a68f6cd7b + + + +#judgment { font-family: 'Times New Roman'; font-size: 12pt; } +#judgment .Normal { font-size: 12pt; } +#judgment .Heading1 { font-weight: bold; font-family: Arial; font-size: 16pt; } +#judgment .Heading2 { text-align: justify; font-weight: bold; text-transform: uppercase; font-size: 14pt; } +#judgment 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+

2013 Folio 1084

+

Neutral Citation Number: [2015] EWHC 718 (Comm)

+

IN THE HIGH COURT OF JUSTICE

+

QUEEN'S BENCH DIVISION

+

COMMERCIAL COURT

+

Combined Court Centre

+

The Law Courts

+

Winchester

+

Hants SO 23 9EL

+

Date: 18/03/2015

+

Before :

+

THE HON. MR JUSTICE POPPLEWELL

+

- - - - - - - - - - - - - - - - - - - - -

+

Between :

+ + + + + + + + + + + + + + + + +
+

+

+

SPAR SHIPPING AS

+

+

+

Claimant

+
+

+

+

- and -

+

+

+

+

+

+

+

GRAND CHINA LOGISTICS HOLDING (GROUP) CO., LTD

+ 		+

Defendant

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+

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- - - - - - - - - - - - - - - - - - - - -

+

Nevil Phillips and Natalie Moore (instructed by Thomas Cooper LLP) for the Claimant

+

Michael Coburn QC (instructed by Holman Fenwick Willan LLP) for the Defendant

+

Hearing dates: 29, 30 January, 2, 4 February 2015

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- - - - - - - - - - - - - - - - - - - - -

+

Judgment

+

The Hon. Mr Justice Popplewell :

+

Introduction

+
+ + + + 1. + +

The Claimant ("Spar") is the registered owner of three supramax bulk carriers, the SPAR CAPELLA, SPAR VEGA and SPAR DRACO (collectively “the Vessels”). By three charterparties dated 5 March 2010 on amended NYPE 1993 forms, the Vessels were let on long term time charter to Grand China Shipping (Hong Kong) Co Ltd (“GCS”). The charterparties provided for guarantees to be issued by the Defendant (“GCL”), which is the parent of GCS. Three letters of guarantee were issued on behalf of GCL dated 25 March 2010 (“the Guarantees”).

+ + + + 2. + +

The SPAR DRACO was built in 2006 and was of some 53,500 mt dwt. It was chartered for minimum 35 maximum 37 months in charterers’ option with hire of US$16,500 per day payable semi monthly in advance. It was delivered into the charter on 31 May 2010. The SPAR CAPELLA and SPAR VEGA were newbuildings at a Chinese yard of some 58,000 mt dwt and were delivered into the charterparties from the yard on 6 and 12 January 2011 respectively. Those charters were for minimum 59 maximum 62 months in charterers’ option with hire of US$16,750 per day payable semi monthly in advance.

+ + + + 3. + +

From April 2011 GCS was in arrears in payment of hire. Spar recouped some of the arrears by exercising its lien on sub freights, but there remained substantial arrears of hire on all three vessels throughout the summer of 2011 and a chronology of missed or delayed payments. Spar called on GCL for payment under the Guarantees on 16 September 2011. On 23 September 2011 Spar withdrew the SPAR CAPELLA and terminated that charterparty. On 30 September 2011 Spar withdrew the SPAR VEGA and SPAR DRACO and terminated those charterparties.

+ + + + 4. + +

Spar commenced arbitration proceedings against GCS claiming the balance of hire due under the charters and damages for loss of bargain in respect of the unexpired term of the charters. Shortly prior to the hearing of the arbitration GCS went into liquidation in Hong Kong and the arbitration proceedings were stayed.

+ + + + 5. + +

Spar brings the present claim against GCL under the Guarantees. The amounts claimed comprise the following:

+ + + (1) + +

The balance due under the charters prior to termination, quantified after credit for bunkers remaining on board and other cross claims at US$217,238.95 for the SPAR CAPELLA and US$344,431.14 for the SPAR VEGA (there was a small balance in favour of GCS on the balance of accounts for the SPAR DRACO).

+ + + + (2) + +

Damages for loss of bargain in respect of the unexpired term of the charters. In respect of the SPAR DRACO it was common ground that there was at the date of termination an available market for a substitute time charter for the unexpired term of the charter of about 18 months at US$13,000 per day, on the basis of which damages were quantified at US$2,739,029. In respect of the SPAR CAPELLA and SPAR VEGA it was common ground that at the date of termination there was no market for a substitute time charter for the unexpired term of the charters of about four years. Spar has quantified the damages as the difference between what it would have earned under the charters and the actual earnings from employment of the vessels to date and estimated future earnings of US$9,600 per day until expiry of the charter periods in December 2015. The calculations performed by Spar in respect of actual earnings did not in fact cover the entire period up to the hearing date but only up to 31 December 2014 with the period thereafter being treated as future earnings. The amounts claimed were:

+ + + (a) + +

SPAR CAPELLA: US$7,967,879.16 to 31.12.14 and US$2,308,658.23 for future earnings to expiry, making a total of US$10,276,537.39;

+ + + + (b) + +

SPAR VEGA: US$8,012,272.22 to 31.12.14 and US$2,349,899.27 for future earnings to expiry, making a total of US$10,362,171.49;

+ + + + + (3) + +

Spar’s costs of the arbitration proceedings against GCS in the sum of £319,868.19.

+ + + + + 6. + +

GCL disputes liability on the grounds that it is not bound by the Guarantees: they were signed by Mr Jia Hongxiang (“Mr Jia”) purportedly as Board Chairman, when he was in fact at that time in the lesser position of Executive Board Chairman and is said to have had no authority to sign them on behalf of GCL. Spar contends that Mr Jia had authority to sign the Guarantees. This is an issue governed by Chinese law, on which I heard evidence from Mr Greg Yang on behalf of Spar and Ms Liu Yan on behalf of GCL. Spar contended in the alternative that Mr Jia had ostensible authority, or that GCL had ratified the Guarantees.

+ + + + 7. + +

GCL further submitted that it was not bound by the Guarantees because they did not comply with Chinese exchange control laws requiring the approval and registration of guarantees to overseas entities by the State Administration of Foreign Exchange (“SAFE”), which provide that the issue of an unapproved/unregistered guarantee is an offence and such guarantee is unenforceable unless the guarantor is at fault. Although the Guarantees are expressly governed by English law, GCL submitted that such illegality under Chinese law prevented their enforcement. Spar contends that Chinese law is not applicable, and that in any event the Guarantees would be enforceable as a matter of Chinese law because the fault in failing to secure registration and approval was that of GCL.

+ + + + 8. + +

GCL submitted in the alternative that if it was bound by the Guarantees, it was under no liability in relation to the unexpired periods of the charters: the right of withdrawal under the charters was a contractual option but there had been no breach of the charters giving rise to a right to damages at common law for repudiation or renunciation. Spar contended that it was entitled to damages for loss of bargain for such period because payment of hire was a condition of the charters; alternatively if payment of hire was an innominate term, GCS’s conduct was repudiatory and/or evinced an intention not to pay hire timeously which constituted a renunciation of the charters.

+ + + + 9. + +

In the further alternative GCL challenged the method of calculation of damages for the unexpired periods of the SPAR CAPELLA and SPAR VEGA charterparties. It submitted that damages should not be based on Spar’s actual earnings, but on hire which would have been earned by replacing the charters with timecharter employment, albeit that it would have required two consecutive fixtures of 30 months and about 20 months respectively, alternatively a series of shorter charters. This was not an argument that Spar had failed to mitigate its loss by acting unreasonably in not taking such time charter employment for the vessels, but an argument of law that this was the proper measure of damages. Spar disputed that this was the proper approach as a matter of law and disputed that in any event there was a market for a 30 month charter or a 20 month charter at the relevant times. On this issue, and a number of more minor quantum disputes, I heard expert evidence from brokers, Mr McDonald on behalf of Spar and Mr Lewis on behalf of GCL.

+ + + + 10. + +

GCL also disputed that the arbitration costs were recoverable under the terms of the Guarantees.

+ + + + 11. + +

Accordingly the following issues arise:

+ + + (1) + +

Is GCL bound by the Guarantees? In particular:

+ + + (a) + +

Did Mr Jia have actual authority?

+ + + + (b) + +

Did Mr Jia have ostensible authority?

+ + + + (c) + +

Did GCL ratify the Guarantees?

+ + + + (d) + +

Is non registration with SAFE relevant, and if so does it render the Guarantees unenforceable?

+ + + + + (2) + +

Is payment of hire a condition of the charterparties?

+ + + + (3) + +

If not, was GCS’s conduct in relation to payment of hire a repudiation or renunciation?

+ + + + (4) + +

What is the correct principle for assessment of damages for a charterer’s repudiation of a time charter where there is no market for a replacement time charter of the duration of the unexpired term of the charter?

+ + + + (5) + +

What alternative time charter employment was available for the SPAR CAPELLA and SPAR VEGA?

+ + + + (6) + +

What other adjustments fall to be made, if any, to the quantum of Spar’s claim?

+ + + + (7) + +

Do the arbitration costs fall within the scope of liability under the Guarantees?

+ + + + + 12. + +

Before addressing these issues I must set out the facts in more detail.

+ + + + +

Narrative

+ + + + 13. + +

I heard from Mr Ellefsen, the CEO of Spar, who was a straightforward witness upon whose evidence I felt able to rely. He explained that Spar is a Norwegian company which has grown from its inception to its current position of owning 23 mostly modern Supramax vessels. It is run with a small staff of five people with the fleet mostly time chartered out and serviced by external technical managers. Mr Ellefsen was himself responsible for fixing the Vessels. The SPAR CAPELLA and SPAR VEGA were two of eight vessels which Spar bought in the spring of 2010; they were bought two at a time, with long term employment being secured for each pair before purchasing the next two.

+ + + + 14. + +

Prior to these fixtures, Mr Ellefsen had not heard of GCS or GCL. They were suggested by Spar’s Norwegian brokers, RS Platou, who also had an office in Shanghai. On 1 March 2011 Mr Jan Egil Roald of RS Platou’s Norwegian office passed on to Mr Ellefsen some background information on GCS. This indicated that it was a relatively new company, established in February 2008 and commencing operations in June 2008; that it was wholly owned by GCL; that GCL had been established in April 2007 as part of the HNA Group; and that GCL was a substantial concern with registered capital of over US$100 million and subsidiaries operating businesses in container and bulk shipping, shipbuilding and repairing, air cargo, ports and terminals, and integrated logistics.

+ + + + 15. + +

From the outset Spar required a parent company guarantee if the vessels were to be fixed to GCS. Negotiations were conducted through Mr Roald in RS Platou’s Norwegian office via Mr Shao Heping in their Shanghai office with Mr Kong Dyong on behalf of GCS in Shanghai. By email on 2 March 2010 Mr Kong confirmed that GCL would provide a performance guarantee. Whilst fixture terms were being negotiated, Mr Ellefsen provided the required wording for the guarantee on 3 March 2010. The substantive text was in the terms in which the Guarantees were ultimately provided. At its foot it provided for signature against the text:

+ + + +

Name: XXX XXX

+ + + + +

Title: Board Chairman

+ + + + +

For and on behalf of [blank]

+ + + + + 16. + +

This format and wording was taken from a previous guarantee provided by a Chinese counterparty, which had been approved by Spar’s Norwegian lawyers. It was sent by Mr Shao to Mr Kong early on 4 March 2010 with a fixture offer for account GCS with performance guaranteed by GCL. The offer proposed naming charterers as GCS “with the attached Letter of Guarantee to be executed by [GCL] as guarantor for charterers performance.”

+ + + + 17. + +

Mr Kong responded to Mr Shao on the phone that the main terms proposed were agreeable but that they needed to include a subject of board approval which might take two days. An email counter offer later that day sought “Subject BOD’s approval latest COB Beijing 5 March 2010”.

+ + + + 18. + +

On 5 March Mr Kong emailed Mr Shao stating “Chrtrs are plsd to cfm bod subj lifted and [GCL] as gteed by issuing gtee letter (wch is on formalities for producing and wl send the original one to owr by courier once available”. The email referred to the Vessels as deemed clean and fully fixed and sought five confirmations about the Vessels’ details and a provision for the first payment of hire to be three days after delivery. Mr Kong also spoke to Mr Shao to say that the wording of the performance guarantee was “now in the process of internal procedure” and that this meant they would not be able to provide the performance guarantee the following day but would provide the original as soon as possible.

+ + + + 19. + +

On 8 March 2010 RS Platou sent a final recap, which still included the subject board approval to be lifted by cob 5 March. Mr Kong responded the following day requesting deletion on the grounds that the board of directors approval subject had already been lifted. I conclude from this exchange and from Mr Kong’s email of 5 March 2010 that the board of directors of GCS had considered and approved the charterparty terms by close of business on 5 March 2010.

+ + + + 20. + +

The charters were drawn up on amended NYPE 1993 forms which were signed on behalf of GCS and Spar. They were on identical terms for the three Vessels save as to the rate of hire, period, delivery laycan and vessel details. It is sufficient to set out the relevant terms of the SPAR CAPELLA charter. It was dated 5 March 2010, and provided in line 1 that it was made and concluded in Oslo. Lines 5-6 described the charterers as “[GCS] [Shanghai address], performance guaranteed by [GCL] (se attached Performance Guarantee Letter)”. Clause 10 provided for the charterers to pay hire at the rate of US$16,750 per day and pro rata for part of a day 15 days in advance. Clauses 23 and 61 provided for the owners’ lien on all cargoes, sub-freights, sub-hire and bunkers on board for amounts due under the charter, and that in the event of owners exercising their liberty to withdraw the vessel, bunkers on board would become owners’ property with a duty to give charterers credit for their value. Clauses 45 and 55 provided for English law and London arbitration. Clause 77 provided that “If the vessel is off-hire for more than 60 days continuously, Charterers have the option to cancel this Charter Party.” Clause 11 provided:

+ + + + “11. + +

Hire Payment”

+ + + + (a) + +

Payment

+ + + + +

Payment of Hire shall be made so as to be received by the Owners or their designated payee as per Clause 50 [which identified the owners’ account at a bank in Norway and provided for the first payment to be made within 3 banking days of delivery] in United States Currency, in funds available to the Owners on the due date, 15 days in advance … Failing the punctual and regular payment of the hire, or on any fundamental breach whatsoever of this Charter Party, the Owners shall be at liberty to withdraw the Vessel from the service of the Charterers without prejudice to any claims they (the Owners) may otherwise have on the Charterers.

+ + + + +

At any time after the expiry of the grace period provided in Sub-Clause 11 (b) hereunder and while the hire is outstanding, the Owners shall, without prejudice to the liberty to withdraw, be entitled to withhold the performance of any and all of their obligations hereunder and shall have no responsibility whatsoever for any consequences thereof, in respect of which the Charterers hereby indemnify the Owners, and hire shall continue to accrue and any extra expenses resulting from such withholding shall be for the Charterers' account.

+ + + + (b) + +

Grace Period

+ + + + +

Where there is a failure to make punctual and regular payment of hire due to oversight, negligence, errors or omissions on the part of the Charterers or their bankers, the Charterers shall be given by the Owners 3 clear banking days … written notice to rectify the failure, and when so rectified within those 3 days following the Owners' notice the payment shall stand as regular and punctual.

+ + + + +

Failure by the Charterers to pay the hire within 3 days of their receiving the Owners' notice as provided herein, shall entitle the Owners to withdraw as set forth in Sub-clause 11(a) above."

+ + + + + + + + 21. + +

On 22 March 2010 Mr Shao pressed Mr Kong to arrange for the letters of guarantees to be issued. He replied on the same day that they were “still on the way” and that he would “try to complete” within that week. On 25 March 2010 Mr Kong emailed Mr Shao stating “After chtrs completion of formalities, pls let owners confirm attached log in order, then obtain for signature." The attachment contained the same text as that sent by Spar on 3 March 2010. Its form differed only in that it was set out on GCL’s letter heading and provided at its foot for signature:

+ + + + +

“Name: MR JIA Hongxiang

+ + + + +

Title: Board Chairman”

+ + + + + + + + 22. + +

Mr Ellefsen conveyed his approval of the letter of guarantee in that form through the brokers later on 25 March 2010.

+ + + + 23. + +

The Guarantees were signed by Mr Jia and supplied to RS Platou in Shanghai, together with signed originals of the charterparties, who couriered them to RS Platou Norway on 30 March 2010. Mr Jia’s signature was not accompanied by GCL’s “chop”, ie the company seal.

+ + + + 24. + +

The three Guarantees were in identical form save for the name of each vessel and provided:

+ + + + +

“……..

+ + + + "1) + +

We hereby unconditionally and irrevocably guarantee as primary obligor the full and timely performance by the Charterers of each and every obligation of the Charter Party, and in the event of any one or more defaults in performance by the Charterers, we undertake on your first written demand to promptly rectify each and every default and hereby accept the responsibility for any liability, losses or damages that you suffer as a result or arising out of any such default.

+ + + + 2) + +

We hereby waive due diligence, notice by defaults, and other notice or demand of any kind, and consent to any and all extensions of time, indulgence or waiver of rights under the Charter Party and to any modifications, variation or amendment of the said Charter Party. We shall not be released or discharged from our liability hereunder by any of the above or any change in the shareholding relationship between us and the Charterers.

+ + + + 3) + +

This guarantee shall be governed by and construed in accordance with English law…

+ + + + +

Name: MR JIA Hongxiang [beside which Mr Jia’s signature appeared]

+ + + + +

Title: Board Chairman

+ + + + +

For and on behalf of [GCL]”

+ + + + + + + + 25. + +

The SPAR DRACO was delivered into the charterparty on 31 May 2010, followed by the SPAR CAPELLA on 6 January 2011 and the SPAR VEGA on 12 January 2011.

+ + + + 26. + +

Hire was paid punctually by GCS on all three vessels until April 2011.

+ + + + 27. + +

On 21 April 2011, US$248,208.48 fell due under the SPAR CAPELLA charter. It was not paid until 27 May 2011, by which time the next two SPAR CAPELLA payments had been missed. On 26 April 2011 US$245,145.98 fell due under the SPAR DRACO charter. It was not paid until 18 May 2011, and then only in part, by which time the next SPAR DRACO payment had been missed. On 27 April 2011, US$245,708.48 fell due under the SPAR VEGA charter. It was not paid until 16 June 2011, some 50 days late, by which time the next three SPAR VEGA payments had been missed.

+ + + + 28. + +

On 6 May 2011 the next instalment of US$245,708.48 fell due on the SPAR CAPELLA and was not paid.

+ + + + 29. + +

On 10 May 2011 Mr Shao had a meeting with Mr Kong who apologised for GCS’ failure to pay hire. Mr Kong explained that they had a difficulty making punctual payment of hire because GCS’ capesize vessels had been chartered in at a rate higher than the current market and so payment of hire on those vessels was taking up most of its cash. Mr Kong said that with support and help from GCL and HNA they were working on a structure to separate the capesize vessels from their other smaller ships so as to ensure that hire for the latter was paid on time. He gave the opinion that GCL and HNA would not allow GCS “to go bankrupt” and Mr Shao was convinced by this. Mr Shao said that Spar might have to take “more serious action” in the light of the failure to make punctual payment, to which Mr Kong’s response was that he would not have any grounds for complaint, but he strongly wished that Spar would not do so. He said that he regarded Spar as “a best partner” and would put Spar hire as “the first priority”.

+ + + + 30. + +

On 11 and 12 May 2011 the next instalments fell due for the SPAR DRACO and SPAR VEGA respectively. No payment of hire was made.

+ + + + 31. + +

On 13 May 2011 GCS emailed RS Platou apologising for the late payment. The email suggested that a loan from “our group company” was anticipated soon and that the outstanding May hire payment would be made the following week. GCS sought Spar’s understanding in the light of the declining market rates. On 16 May GCS sent a further email, again apologising for late payment, asking for Spar’s tolerance to allow more time to raise funds, and stating that GCS would endeavour to pay the outstanding hire as soon as it could.

+ + + + 32. + +

On 18 May 2011 GCS made part payment of the SPAR DRACO instalment due on 26 April 2011 and paid the outstanding first May instalment. On 20 May 2011 GCS emailed that it was working actively on both short term and long term financing schemes, and that it believed it would shortly be able to settle all outstanding debt.

+ + + + 33. + +

Following further missed instalments, GCS emailed on 27 May 2011 stating that it was working on a financing scheme with its parent company and expected the first major injection of capital no later than 15 June. GCS asked for a few more weeks’ patience until the financing situation had been resolved and promised payment of another instalment in the coming week with the remaining outstanding balance being paid “without undue delay following our parent company’s capital injection over the next few weeks.” No payment was made in the following week.

+ + + + 34. + +

On 2 June 2011 GCS reiterated that it was working on a financing scheme with its parent company and expected the first major injection of capital no later than 15 June.

+ + + + 35. + +

On 14 June 2011 someone in the business/law department of GCS told Ms Li Cen at RS Platou that GCS had made progress on renegotiating rates with other owners but had no intention of trying to renegotiate rates with Spar; that it would pay at least two instalments on all three Vessels by the end of the week; and that there was a plan, awaiting approval by top management, to pay all instalments punctually thereafter and to pay off the arrears in three or four payments in July and August.

+ + + + 36. + +

In a phone conversation the following day, 15 June 2011, Mr Liu Zheng of GCS’ business/law department told Mr Shao at RS Platou that contrary to the previous day’s promise, GCS only had enough to pay two SPAR DRACO instalments and were not sure how much more they would receive from the group which would be convertible into foreign currency; that they would try to pay Spar a certain amount of money each week until the arrears were paid off which it was hoped would be in July/August. In both this conversation and the one the previous day with Ms Li Cen, GCS said that other owners had received payments as a necessary part of renegotiating lower rates with them. An email from GCS the same day, 15 June 2011, asked Spar to withdraw the notice of lien on sub-freights of which notice had been given in respect of the SPAR DRACO. GCS said that some funds had been received from its parent company but that it would take a few days to arrange foreign exchange; and that there would be at least one hire payment on the SPAR DRACO that week.

+ + + + 37. + +

The following day, 16 June 2011, GCS paid the outstanding April instalment on the SPAR VEGA and two instalments on the SPAR CAPELLA. An email of the same day proposed a payment plan which involved punctual payment of all hire instalments when they fell due thereafter and payment of the arrears, then standing at about $2.2 million in two equal instalments on 31 August and 30 September. Spar rejected this proposal, complaining that GCS were effectively treating Spar as a bank from whom it was borrowing money without interest or security. Spar proposed a slightly more ambitious payment plan with the remaining arrears being paid off in two equal instalments on 31 August and 30 September, with arrears to carry interest and the debt to be secured by an HNA guarantee. GCS rejected this proposal.

+ + + + 38. + +

On 25 and 26 June 2011 instalments fell due for the SPAR DRACO and SPAR VEGA respectively, neither of which was paid by GCS. The SPAR DRACO instalment was paid four days late on 29 June 2011.

+ + + + 39. + +

By the end of June the situation was that for the SPAR CAPELLA the April instalment, the first of the two May instalments, and the second June instalment had been paid, but the second May instalment and first June instalment had not been paid; for the SPAR VEGA, neither the May or June instalments had been paid; and for the SPAR DRACO, the April and first May instalments had been paid (22 days and 7 days late respectively) but the second May and first June payment had not been paid. The sums outstanding were US$778,717.36 for the SPAR CAPELLA, US$1,053,567.40 for the SPAR VEGA and US$606,746.66, for the SPAR DRACO amounting in total to something approaching US$2.5 million.

+ + + + 40. + +

The next hire instalments for the Vessels were paid by GCS on 6 July, 11 July and 12 July respectively, in each case a day late.

+ + + + 41. + +

On 14 July 2011 Ms Li Cen of RS Platou reported that there had been a meeting two weeks earlier between HNA “head quarter” and GCL. What had happened at the meeting was that Adam Tan, the number 3 in HNA and now in charge of GCL stated that he was very unsatisfied with GCL; and that “HNA could afford to lose the money but would not afford to lose the face”. It was reported that “Adam Tan has given the instruction to solve the issues with Spar asap, and this is not a big amount of money anyway.” There is no firm evidence as to who told Ms Li Cen of the fact and content of the meeting but the email suggests that she and her colleagues were on good terms with Mr Tan and another senior person within the HNA/Grand China group and I have no reason to doubt that her email is an accurate report of what she or her colleagues were told had happened at the meeting, or that what they were told was an accurate account of the meeting.

+ + + + 42. + +

By the end of July 2011 the payment position had improved a little from Spar’s point of view compared to the previous month. In respect of the SPAR CAPELLA, the outstanding May instalment was paid in full and the outstanding first June payment was part paid. The July instalments were paid in full, albeit one day and two days late respectively. The outstanding balance at the end of the month was reduced to US$382,898.09. In respect of the SPAR VEGA, there was no payment of the outstanding May and June instalments, but the July instalments were paid in full, albeit one day late on the first occasion. The balance outstanding at the end of the month was US$872,025.80. In respect of the SPAR DRACO, there was no payment of the outstanding May or June instalments, but the July instalments were paid in full, albeit a day late on the first occasion. The balance outstanding at the end of the month was US$609,420.66. The total outstanding balance had therefore reduced to about US$1.8 million, and the July instalments had been paid, albeit mostly late. On 26 July 2011 GCS repeated what it described as its promise in June (16 June: see above), that the arrears would be paid off in full in August and September.

+ + + + 43. + +

In August 2011 the SPAR DRACO was in drydock throughout the month. For the SPAR CAPELLA the August instalments were paid four and five days late respectively. For the SPAR VEGA, the first August instalment was paid five days late and the second instalment due on 25 August remained unpaid at the end of the month. The total outstanding on the three Vessels at the end of the month was almost US$2 million, a deterioration from the position at the end of July, which would have been greater had not Spar successfully made recoveries from sub-charterers by exercising its lien.

+ + + + 44. + +

GCS did not, as promised, pay off half of the arrears by 31 August 2011.

+ + + + 45. + +

On 1 September 2011 GCS paid the outstanding May instalments on the SPAR VEGA.

+ + + + 46. + +

On 2 September 2011 Spar emailed GCS through the broking channel giving notice of Spar’s intention to call on the Guarantees and threatening High Court proceedings in London if 50% of the arrears was not paid off by 8 September. At this time the balance due on all three Vessels stood at about US$1.7 million.

+ + + + 47. + +

The SPAR CAPELLA instalment of hire due on 3 September 2011 went unpaid. On 6 September 2011 a message from GCS through the broking channel was to the effect that it was doing everything possible to reduce the outstanding hire step by step, that it was “struggling”, that it would try its best, but that it hoped Spar would understand. Spar responded drawing attention to GCS’ broken promises and asking GCS and its parent company to give a clear demonstration that they stood by their obligations.

+ + + + 48. + +

On 6 September 2011 GCS made a part payment towards the outstanding August instalment for the SPAR VEGA and on 8 September 2011 GCS paid the outstanding instalment for the first half of June for that vessel.

+ + + + 49. + +

Instalments due on the SPAR DRACO and SPAR VEGA on 8 September and 9 September respectively went unpaid.

+ + + + 50. + +

On 9 September 2011 GCS emailed Spar through the broking channel stating that it was always trying its best to fulfil its payment obligations under the charters; that capital from its parent company was injecting into its account gradually but it took time to arrange for foreign exchange; that Spar would be placed “in the top list of [its] payment schedule” upon receipt of the money; and that there was therefore no need to call on the Guarantees. The email gave no indication of how much was expected to be received from the parent company, or when, and made no concrete proposal for paying hire punctually or paying off the arrears. Spar responded that unless GCS reconsidered its position and made a concrete proposal by Monday 12 September it would call on the Guarantees.

+ + + + 51. + +

An email from RS Platou to Spar of 14 September 2011 suggests that Mr Shao was told by GCS that it was having an internal meeting that afternoon but that Spar should not expect an encouraging reply because of GCS’ “bad” lack of cash flow. The same day GCS sent two emails asking Spar to lift its lien on sub-freights in respect of all three vessels. One of the emails apologised for the unpaid hire and the “some inconvenience” caused, and referred to GCS’ “present cash flow situation”. GCS offered to pay the sub-hire to Spar when received if the liens were lifted.

+ + + + 52. + +

On 15 September 2011 GCS explained its failure to make a payment on the SPAR DRACO as due to the sub-charterer’s non payment of hire.

+ + + + 53. + +

On 16 September 2011 Spar sent three letters, one in respect of each vessel, by telex addressed to GCL, giving notice of defaults under the charters in respect of the non payment of hire, identifying the amount outstanding and calling on GCL to fulfil its obligations under the Guarantees by paying those amounts by 23 September 2011. The amounts outstanding were US$448,354.81 for the SPAR CAPELLA, US$497,276.29 for the SPAR VEGA and $601,016.05 for the SPAR DRACO, totalling some US$1.5 million. GCL asserts that such letters were not received because it had moved from the address used on the letters, which was that given in the Guarantees, to a new office in Shanghai. However GCL’s new letterhead reveals that it maintained the same fax number at its new address as before. Since the letters were sent by fax, I conclude that they were received by GCL at its new office in Shanghai. The letters attached copies of the Guarantees.

+ + + + 54. + +

On 18 September 2011 another instalment of hire due for the SPAR CAPELLA went unpaid.

+ + + + 55. + +

On 22 September 2011 Mr Shao of RS Platou spoke to Mr Luo Zhipeng, the general manager of GCL’s compliance department, and followed the conversation with an email. It referred to the claim on the Guarantees in the letters recently sent to GCL, and urged GCL to pay all the arrears by 23 September, or at least to pay half and put forward concrete proposals for payment of the balance. Mr Luo Zhipeng responded by email on 23 September 2011. He said that 23 September was unrealistic because of the financial pressure on the group to pay off substantial interest owed to banks which was more vital to the survival and sustainable development of the group. He stated: “I request the owners be more patient until October when financial support will come, in view of the relatively small sum and long-standing cooperative relationship”. Such a response gave Spar no cause for confidence that there would be any substantial payment in the immediate future. Mr Luo Zhipeng did not question the existence or validity of the Guarantees; nor did he query the reference in the email to which he was responding to the letters recently sent claiming on the Guarantees and imposing the 23 September deadline, which provides further confirmation that the letters of 16 September were indeed received by GCL.

+ + + + 56. + +

GCS sent an email the same day, 23 September 2011, stressing that it had agreed to sub-hire on the vessels being paid directly to Spar. It said it was making efforts to pay “the further hire payment” and believed that it would be effected after China National Day (which is 1 October). It is unclear which instalment or instalments this was intended to refer to. The email concluded: “In the meantime, we have report owns request to GCL and be informed that the financial support will be arrival at October. Please owns remain patient until sufficient financing is in place”.

+ + + + 57. + +

Throughout the period from April to September 2011 Spar had regularly been sending anti-technicality notices in compliance with clause 11(b) of the charterparties for the missed hire payments.

+ + + + 58. + +

On the evening of 23 September 2011 Spar gave notice of withdrawal of the SPAR CAPELLA in accordance with clause 11 of the charterparty with immediate effect. The notice expressly reserved Spar’s right to claim damages from GCS as a consequence of “charterers fundamental failure to observe the terms of the subject c/p, which clearly show that charterers no longer intend to be bound by the terms of the c/p”. The last payment of any hire in respect of the vessel had been almost a month earlier on 24 August 2011, since which time two further instalments had fallen due and remained unpaid.

+ + + + 59. + +

On 29 September 2011 GCS sought to explain its failure to pay a SPAR DRACO hire instalment as due to the remitting bank ceasing business during a typhoon.

+ + + + 60. + +

On 30 September 2011 Spar gave notice of withdrawal of the SPAR VEGA and SPAR DRACO in similar terms to the withdrawal notice for the SPAR CAPELLA. For the SPAR DRACO, the last payment of hire had been on 25 July 2011 before she went into drydock. After she came out of drydock two further instalments of hire had fallen due in September and remained unpaid. For the SPAR VEGA, the last payment of hire by GCS had been of the first September instalment due on 9 September (19 days late) with no payment for the instalment due on 24 September.

+ + + + 61. + +

Between April 2011 and termination of the charters at the end of September 2011 Spar had reduced the arrears of hire by over US$1 million by collecting sub-freight/sub-hire in exercise of its lien. The amounts so collected, in some cases with the agreement of GCS, comprised US$534,479.11 for the SPAR CAPELLA, US$514,669.22 for the SPAR VEGA and US$81,181.90 for the SPAR DRACO.

+ + + + 62. + +

After allowing credit for these recoveries, the total balance of hire remaining outstanding at the date of termination of the charters was US$1,318,926.02

+ + + + 63. + +

Following termination the subsequent employment of the Vessels was as follows.

+ + + + 64. + +

As to the SPAR CAPELLA:

+ + + (1) + +

On 24 September 2011 Spar entered into a substitute fixture with the existing subcharterers, Flame SA, for a short period, to enable discharge of the cargo then loaded on board, at a daily rate of US$14,275.

+ + + + (2) + +

On 29 September 2011, Spar fixed a time charter with Swiss Marine Asia for a term of 12 months on a floating rate of 103.75% of the daily Baltic Supramax Index. The Vessel was delivered into the charter on 8 October 2011, after completion of the discharge of cargo in South China and re-delivery of the vessel from Flame SA. The Vessel was redelivered on 16 September 2012.

+ + + + (3) + +

From 16 September 2012, Spar entered the Vessel in the Navig8 Pool, for a minimum period of 12 months. Mr Ellefsen gave evidence that the SPAR CAPELLA was still in the Navig8 pool at the time of the hearing, but that Spar had recently given notice to withdraw it.

+ + + + + 65. + +

As to the SPAR VEGA:

+ + + (1) + +

On 29 September 2011 Spar entered into a 12 month substitute fixture with Swiss Marine Asia, for the same duration and on similar terms as those agreed in respect of the SPAR CAPELLA. The vessel was re-delivered in mid-October 2012.

+ + + + (2) + +

The vessel was placed in the Navig8 Pool from 16 October 2012 and remained in the pool until November 2014.

+ + + + (3) + +

On 18 November 2014 Spar entered into a charterparty with Centurion Bulk Pte Ltd for a minimum period of 40 days at a rate of $10,000 per day. Mr Ellefsen gave evidence that the vessel was re-delivered at the beginning of January 2015 and had subsequently been employed in a new charter going into the Persian Gulf at a daily rate of $6,000.

+ + + + + 66. + +

As to the SPAR DRACO:

+ + + (1) + +

On 5 October 2011 Spar entered into a substitute short-term fixture with JSW Ispat Steel Ltd for a term of 10 - 15 days at a daily rate of US$14,100.

+ + + + (2) + +

Following re-delivery of the vessel, Spar entered into a new fixture with Allied Maritime Inc for 4 - 6 months at a rate of US$14,250 per day.

+ + + + (3) + +

On 23 February 2012 Spar entered into a new 4 - 6 month fixture with D'Amico Dry Ltd at $11,500 per day. The vessel was delivered on 16 March 2012 and re-delivered to Spar on 6 June 2012.

+ + + + (4) + +

On 4 September 2012 Spar entered into an agreement for the SPAR DRACO to be placed into the Navig8 Pool for a minimum period of 12 months.

+ + + + + Issue 1: Is GCL bound by the Guarantees? + + +

Actual authority: Chinese law

+ + + + + 67. + +

The question whether Mr Jia had actual authority to bind GCL to the Guarantees is governed by Chinese law. The Chinese law experts also addressed principles of apparent authority and ratification, but it is common ground that such issues are not governed by Chinese law.

+ + + + 68. + +

The Articles of Association of GCL include the following:

+ + + + +

“Article 24

+ + + + +

The Board of Directors shall be the decision-making organ of the Company as well as the standing organ of powers of the Board of Shareholders. The Board of Directors shall be accountable to the Board of Shareholders.

+ + + + +

Article 25

+ + + + +

The Board of Directors of the Company shall comprise of 5 directors, among whom there shall be one Board Chairman, one Executive Board Chairman and three Vice Board Chairmen. The term of office shall be 3 years. A director may serve consecutive terms upon expiration if re-elected.

+ + + + +

Article 26

+ + + + +

The directors shall be elected by the Board of Shareholders. The Board Chairman, the Executive Board Chairman and the Vice Board Chairmen shall be elected by the Board of Directors. The Board Chairman is the legal representative of the Company. The term of office of the Board Chairman, the Executive Board Chairman and the Vice Board Chairman shall be 3 years and may serve consecutive terms upon expiration if re-elected.

+ + + + +

Article 30

+ + + + +

The Board of Directors shall exercise the following functions and powers:

+ + + (1) + +

Convene shareholders’ meetings

+ + + + (2) + +

Execute resolutions passed in shareholder’s meetings;

+ + + + (3) + +

Review and determine the Company’s development plans, annual production and operation plans, financial budget and accounting proposals, profit distribution proposals and proposals for making up losses;

+ + + + (4) + +

Put forward proposals for the increase or reduction of the Company’s registered capital, issuance of bonds, and for mergers, divisions, dissolution and liquidation of the Company;

+ + + + (5) + +

Appoint General Manager and, upon the General Manager’s nomination, appoint the senior managerial personnel including the Vice General Manager and financial officers of the Company;

+ + + + (6) + +

Ascertain the operational and managerial system of the Company, including the labour and wages system, personnel management system and financial affairs management system;

+ + + + (7) + +

Examine and approve proposals regarding structural establishment and manning quotas proposed by the General Manager;

+ + + + (8) + +

Examine and approve important operational decisions of the Company;

+ + + + (9) + +

Other functions and powers authorised in the shareholders’ meeting.

+ + + +

Article 31

+ + + + +

The Board Chairman is the legal representative of the Company and shall exercise the following functions and powers:

+ + + (1) + +

Convene and preside over meetings of the Board;

+ + + + (2) + +

Monitor the execution of the resolutions passed at the Board meetings;

+ + + + (3) + +

Sign the Capital Contribution Certificates, important contracts and other important documents of the Company;

+ + + + (4) + +

Give guidance and instructions regarding important business activities of the Company in the intercession of the Board of Directors;

+ + + +

The Executive Board Chairman and Vice Board Chairmen shall assist the Board Chairman in his or her work. If the Board Chairman is unable to perform his or her duties, he or she can authorise the Executive Board Chairman or the Vice Board Chairmen to carry out part or all of the Board Chairman’s duties.”

+ + + + + + + + 69. + +

There was a large measure of agreement between the Chinese law experts. It was established that:

+ + + (1) + +

Article 13 of the Company Law provides for a company to have a Legal Representative who is registered in a publicly available register. The Legal Representative is to be the Board Chairman, the Executive Board Chairman or the Manager, in accordance with the company’s articles of association. Articles 26 and 31 of GCL’s articles of association provided for the Chairman to be the Legal Representative. Mr Li Qing was the Chairman of GCL March 2010 and therefore the Legal Representative pursuant to its articles of association at the time the Guarantees were executed.

+ + + + (2) + +

Under Article 38 of the General Principles of Civil Law PRC (1987) (“GPCL”), a company is bound by the acts of its Legal Representative exercising his powers in accordance with the articles of association. Mr Li therefore would have had authority to enter into the Guarantees if in so doing he was exercising powers he had under the articles.

+ + + + (3) + +

Acts of a person other than the Legal Representative will also be binding if the company has authorised that other person to perform the acts. This is the effect of Article 63(1)(2) of the GPCL which provides:

+ + + + +

“… legal persons may perform civil juristic acts through agents. An agent shall perform civil juristic acts in the principal’s name within the scope of the power of agency. The principal shall bear civil liability for the agent’s acts of agency.”

+ + + + + + + + (4) + +

Accordingly if Mr Li as Legal Representative had authority to enter into the Guarantees exercising powers he had under the articles, and authorised Mr Jia to execute the Guarantees, GCL would be bound by them. The possibility of such delegated authority is expressly recognised in article 31 of GCL’s articles of association.

+ + + + (5) + +

Acts of a person other than the Legal Representative will also be binding if the person performs an act in the name of the company, with the knowledge of the company, and the company makes no objection. This is the effect of Article 66 of GPCL which provides:

+ + + + +

“The principal shall bear civil liability for an act performed by an actor with no power of agency, beyond the scope of his power of agency or after his power of agency has expired, only if he recognizes the act retroactively. If the act is not so recognized, the performer shall bear civil liability for it. If a principal is aware that a civil act is being executed in his name but fails to repudiate it, his consent shall be deemed to have been given.”

+ + + + + + + + (6) + +

Contracts will bind a company if signed or sealed by the relevant person. It is not necessary that they should be both signed and sealed. Whereas it was common in the past for the company seal or “chop” to be attached to documents, the practice was not universal and has become less frequent in more recent years in relation to international contracts.

+ + + + + 70. + +

Three relevant aspects of Chinese law were in dispute. The first was that Ms Liu contended that the articles of association of GCL required a resolution of the board of directors before the Guarantees could validly be entered into, by reason of article 30(8), which includes within the functions and powers of the board “examining and approving important operational decisions of the company”; accordingly Mr Li did not have, and could not confer on Mr Jia, any authority to execute the Guarantees in the absence of such a resolution. Mr Yang disputed this interpretation of the articles of association and contended that the Legal Representative has power under article 31(3) to execute important contracts and other important documents of the company irrespective of whether there has been a board resolution. Mr Yang’s evidence was also that, even if a guarantee is issued otherwise than in accordance with the articles of association, that does not render it null and void and it remains binding on the company. He identified a decision by the Beijing Higher People’s Court, a decision recommended by the Supreme People’s Court in its published bulletin, which stated and applied this principle. Decisions made by the Supreme People’s Court, or approved by it, are treated as authoritative.

+ + + + 71. + +

On this issue I prefer the evidence of Mr Yang. Ms Liu’s contention only really emerged in the course of her oral evidence at the hearing; it was not a point taken in either of her written reports or at the experts’ meeting, although if it were a valid point it would have been critical to the questions she was asked to address as to whether GCL was bound by the Guarantees. In her first report she was unequivocal in stating that if the Guarantees were signed by the Legal Representative they would “certainly” bind the company, without any qualification of the need for a board resolution. At the experts’ meeting she agreed that the Legal Representative’s behaviour in the name of the company bound the company “unconditionally”. In her second report she mentioned articles 30(8) and 31(3) of the articles of association and the lack of a board resolution but only for the purposes of making the point that Mr Jia had not been given any express authority to sign the Guarantees, not in support of a wider and more general point that GCL could not be bound in the absence of a board resolution whatever express authority was conferred on Mr Jia by Mr Li.

+ + + + 72. + +

Secondly Mr Yang’s evidence was that there was an established principle that a company was bound by acts of “other personnel” of sufficient seniority (which would include Mr Jia) if they were performed in the course of duty related activity, irrespective of any authorisation by the Legal Representative. He explained that this was necessary to enable normal business transactions to take place because contracts and business commitments are normally made by personnel at management level and counterparties must be able to assume that such a person has authority. He said that the principle emanated from Article 43 of the GPCL and Article 58 of the Opinions of the Supreme People’s Court on Several Issues concerning the implementation of the General Principles of the Civil Law of the People’s Republic of China (Trial Implementation) (“the SPC Opinions”) which provide respectively:

+ + + + +

Article 43 GPCL

+ + + + +

“An enterprise as legal person shall bear civil liability for the business activities of its legal representatives and other personnel.”

+ + + + +

Article 58 of the SPC Opinions

+ + + + +

“The legal representative of an enterprise legal person and other personnel who engage in business activities in the name of the legal person and cause economic damages to others, the enterprise legal person shall undertake civil legal liabilities.”

+ + + + + + + + 73. + +

Mr Yang drew attention to two recent cases decided by the Supreme People’s Court in 2013 which he said illustrated the application of this principle, in which companies had been held bound by duty related activities of “other personnel” at management level. The first was the Dunhuang Company v Bang Jun Company case, in which a company was held to be bound by a contract signed by its vice general manager without any special authority from the Legal Representative, on the grounds that he was performing a duty related activity. Although Article 43 GPCL and Article 58 of the Opinions were not specifically mentioned in the judgment, Mr Yang’s evidence was that the duty related activity language and analysis is well known shorthand for the concepts in those articles. The second SPC decision relied on was the Jia Heng Company case, in which a company was held to be bound by construction confirmation certificates signed by its superintendent engineer on site on the grounds that he was performing a duty related activity.

+ + + + 74. + +

Ms Liu accepted that Article 43 GPCL and Article 58 of the SPC Opinions were relevant, but expressed her opinion as being that that they, and the cases referred to by Mr Yang, were simply aspects of the principle that a company is bound by those to whom the Legal Representative has delegated actual authority. She relied on a decision of a regional court, the Jiangsu High Court, which Mr Yang dismissed as of no relevance or authority.

+ + + + 75. + +

Again I prefer the evidence of Mr Yang on this issue. Ms Liu had not given any consideration to these articles until they were drawn to her attention by Mr Yang in his first report. This was one of a number of aspects of her evidence which gave me less confidence in her opinions than those of Mr Yang, others being her last minute espousal of a requirement for a board resolution, and the introduction, again for the first time in her oral evidence, of reference to and reliance on Article 50 of the Contract Law. I regard Mr Yang’s view as being supported by the Dunhuang Company v Bang Jun Company case, in which the vice general manager had been “designated” for “participation” in the relevant project but not “authorised to sign [the contract].” It does not therefore appear to be a case of a chain of delegated express authority from the Legal Representative.

+ + + + 76. + +

Thirdly, there was a dispute as to the potential applicability of the principle, emanating from Article 66 of GPCL, that if a principal is aware that a civil act is being executed in his name but fails to repudiate it, his consent shall be deemed to have been given. Spar characterised this as a principle akin to implied authority, and therefore an aspect of actual authority which is governed by Chinese law. GCL contended that this was an aspect of Chinese law akin to ostensible authority and therefore of no relevance because questions of ostensible authority are governed by English law as the putative proper law of the Guarantees. The dispute between the parties is therefore not so much an issue of Chinese law as an issue of categorisation for the purposes of the application of English conflict of laws rules, albeit informed by the Chinese law on the nature and content of the principle.

+ + + + 77. + +

On this issue I prefer the submissions of Spar. The relevant part of the article requires two elements. The first is contemporaneous knowledge by the principal: the article is directed to situations in which the principal knows that the civil act “is being executed in his name”, i.e. at the time of its execution. It is distinct from any later ratification which is dealt with earlier in the article. Secondly there must be an absence of repudiation by the principal. Again this is directed to the time of execution. The repudiation does not have to be made or communicated to the other party to the contract or to anyone in particular in order to prevent the principle applying. What is required is a failure to disavow that the person who is purporting to bind the company is entitled to do so. The effect of a lack of repudiation is that the principal is “deemed” to have consented to the person who is purporting to bind him in fact doing so. It is a form of deemed actual authority based on knowledge and silence: the combination means that the principal can be taken to have given his authorisation. In his first report Mr Yang described it as “implied authority”, before the current debate about categorisation emerged, and for the reasons explained I regard this as the correct categorisation from an English conflict of laws point of view. The principle is not akin to ostensible authority which is governed by the putative proper law of the contract. Both Mr Yang and Ms Liu identified a separate principle of ostensible authority under Chinese law which arises under Article 49 of the Contract Law and Article 13 of the SPC Opinions, and is unrelated to Article 66 of the GPCL.

+ + + + 78. + +

Applying these principles, Mr Jia’s signatures on the Guarantees binds GCL if it is established that:

+ + + (1) + +

Mr Li expressly authorised Mr Jia to sign them; or

+ + + + (2) + +

Mr Li knew that Mr Jia was signing them and purporting to bind GCL when they were executed, but did nothing to repudiate Mr Jia’s authority to do so; or

+ + + + (3) + +

Irrespective of any authorisation or knowledge on the part of Mr Li, Mr Jia was performing a duty related activity in signing the Guarantees.

+ + + + +

Actual authority: the facts

+ + + + + 79. + +

GCL did not call Mr Jia or Mr Li. It sought to rely on a statement from Mr Li that he had no knowledge of the Guarantees being signed or provided, and had not authorised Mr Jia to do so. Spar submitted that other evidence made a very powerful circumstantial case to the contrary; and that no weight should be attached to Mr Li’s statement given Mr Li’s unwillingness to have this evidence tested by cross examination.

+ + + + 80. + +

Leaving to one side for the time being the statement of Mr Li, the following aspects of the evidence give rise to a very strong inference that Mr Li did know of the Guarantees at the time they were signed, and authorised Mr Jia to sign them; or at the very least that Mr Li knew that Mr Jia was signing them so as to purport to bind GCL and did nothing to repudiate it:

+ + + (1) + +

On 4 March 2010 GCS imposed a “subject BOD” approval and subsequently confirmed on 5 March 2010 that it had been lifted. I have already expressed my conclusion that the obvious inference from this exchange, and from the further exchange on 8 March 2010, is that a board resolution of GCS had taken place on 5 March 2010 following conclusion of the fixture negotiations, in order to give or withhold approval of GCS entering into the charters. Mr Coburn submitted that the fact that the subject was lifted did not necessarily mean that a board meeting had taken place. But there would have been little purpose in imposing the subject in the first place unless board approval was regarded as required. The significance of this is that Mr Li was not only Chairman of GCL, but was also at the time a director of GCS, who would have attended such a board meeting in that capacity and participated in giving approval on behalf of GCS. The fixture terms made very clear that GCS’s obligations were to be guaranteed by GCL and Mr Li could not have been unaware of this as a member of GCS’s board considering approval of the charters. He must have known that Guarantees were required to be, and would be, given on behalf of GCL.

+ + + + (2) + +

On 5 March 2010 Mr Kong of GCS said that the Guarantees were “on formalities for approving”, and “now in the process of internal procedure” which suggests that GCL’s internal procedures were being engaged. If these required authorisation from Mr Li, the natural inference is that the procedures were followed and such authorisation was sought and granted before any Guarantees were provided. Mr Kong confirmed on 25 March 2010 that the formalities had been completed. The natural inference is that whatever authority was required by internal procedures for the execution of the Guarantees by whoever was to sign them had been obtained.

+ + + + (3) + +

Mr Jia signed the Guarantees. Mr Yang’s unchallenged evidence was that Mr Li’s background was in aviation, whereas Mr Jia’s was in shipping. It would therefore have been natural for Mr Jia to be in charge of executing Guarantees for long term time charters. There is no evidence which suggests that Mr Jia was the kind of man who would execute guarantees without being authorised, or of any reason why he would have done so in this instance. The fact that he did so over the title of Chairman is consistent with his not noticing or being bothered about that inaccuracy given that the draft was prepared by Spar and would have been presented to him in that form. Mr Coburn referred me to some internet material which raised the suggestion that Mr Jia had subsequently been accused of bribery in relation to a different charter, but Mr Coburn made clear that he did not accuse Spar of involvement in any bribery, and GCL could have been expected to adduce evidence if there were any grounds for even suspicion of bribery in relation to these charters or Guarantees.

+ + + + (4) + +

Mr Jia had executed guarantees on behalf of GCL which guaranteed GCS’s charter obligations on at least six other occasions whilst he was Executive Board Chairman in 2010:

+ + + (a) + +

On 28 January 2010 Mr Jia signed a guarantee on behalf of GCL guaranteeing the obligations of GCS as charterers of the m/v Minerva under a charterparty dated 26 January 2010. The guarantee also bore the company seal.

+ + + + (b) + +

Mr Jia signed an undated guarantee on behalf of GCL guaranteeing the obligations of GCS as charterers of the m/v Monemvasia under a time trip charterparty dated 1 March 2010. This guarantee did not bear the company seal.

+ + + + (c) + +

On 21 April 2010 Mr Jia signed a guarantee on behalf of GCL guaranteeing the obligations of GCS or a nominee under a bareboat charter dated 12 April 2010. The guarantee also bore the company seal.

+ + + + (d) + +

Mr Jia signed an undated guarantee on behalf of GCL guaranteeing the obligations of GCS as charterers under a charterparty with Danish owners dated 30 August 2010. The guarantee also bore the company seal.

+ + + + (e) + +

The Monemvasia charter was extended by amendment to become a two year time charter, performance of which was further guaranteed by GCL by an agreement dated 10 October 2010. Mr Jia signed the guarantee agreement on behalf of GCL, this time with the company seal. The obligations under this agreement were further guaranteed by HNA.

+ + + + (f) + +

On 22 October 2010 Mr Jia signed a guarantee on behalf of GCL guaranteeing the obligations of GCS as time charterers of the m/v Bulk Singapore under a charterparty dated 1 June 2010. The guarantee also bore the company seal.

+ + + + + (5) + +

Five of these six guarantees bore the company seal. Either it was applied by Mr Jia, which suggests that he had access to the seal and therefore that he was on occasion given authority to sign guarantees on behalf of GCL; or the seal was applied by Mr Li with signature by Mr Jia either before or afterwards, which again would be indicative of Mr Jia having authority to sign such guarantees.

+ + + + (6) + +

GCL did not disclose copies of any of these six guarantees signed by Mr Jia. Spar obtained them from public files in litigation in the USA. In fact GCL did not disclose any documents evidencing internal communications in respect of the conclusion of the Spar charters or the Guarantees, notwithstanding that Mr Li described a formal internal procedure requiring consideration by the compliance department, the financial department and the board of directors. GCL served a witness statement from the General Manager of its HR department explaining that its practice was such that it was left to retiring employees to select documents from their personal hard drives to pass on to those taking over, and the remainder would be deleted. Whilst not accepting Mr Phillips’ submission that such a document retention policy was incredible, nevertheless I find it hard to believe that no documentation survives from the formal compliance and authorisation procedures for those guarantees executed by Mr Jia in other cases, or that copies of those guarantees themselves, which would be important documents, were not preserved in copy. I am forced to the conclusion that such material has not been provided because those within GCL who are responsible for doing so did not wish the court to see it because it did not assist GCL’s case.

+ + + + (7) + +

The report of what Mr Adam Tan of HNA/GCL said at the meeting in early July 2011 suggests that GCL were then treating the Guarantees as validly given on its behalf. If there had been any doubt over Mr Jia’s authority to execute them the previous year, Mr Tan could have been expected to raise it then.

+ + + + (8) + +

When Spar sent letters to GCL on 16 September 2011 claiming on the Guarantees, GCL could have been expected to deny that the Guarantees were binding if that was thought to be the case. There was no such response. I reject GCL’s suggestion that the letters were not received, in the light of the fact that they were sent to what was still GCL’s current fax number; and in the light of the subsequent discussion between Mr Shao of RS Platou and Mr Luo Zhipeng, the general manager of GCL’s compliance department, on 22 September, followed by an email referring to the claim on the Guarantees and Mr Luo’s response.

+ + + + (9) + +

Again, Mr Luo’s failure to suggest at this point that there was any doubt that GCL was bound by the Guarantees is telling. He was not some junior functionary but head of the compliance compartment and could be expected to have investigated whether the Guarantees had indeed been validly given on behalf of GCL before corresponding on the basis that they had.

+ + + + (10) + +

Although Mr Jia has left GCL, GCL provided no information, still less evidence, to the effect that he would not assist by giving evidence, and if so explaining why not. His departure from GCL is not of itself an explanation, as is apparent from Mr Li’s willingness to provide a statement despite having left the company. Applying the principles identified in Wisniewsky v Central Manchester Healthy Authority [1998] PIQR 324, 340, it is legitimate to draw the inference, that GCL has not called him because it did not think that his evidence would assist its case.

+ + + + (11) + +

GCL has disclosed no documents or other evidence identifying when it discovered the existence of the allegedly unauthorised Guarantees, of which it was aware no later than 16 September 2011, nor any documents containing or evidencing any adverse reaction, either internally or externally. Had Mr Jia been unauthorised, one would have expected disclosure of such documents and some witness evidence explaining GCL’s reaction upon its discovery and its investigation into what had happened.

+ + + + + 81. + +

I have concluded that I can attach no weight to the statement of Mr Li that he did not authorise Mr Jia to sign the Guarantees and was unaware that he was doing so, for the following reasons:

+ + + (1) + +

Mr Li was not called to give evidence and his evidence has not been tested.

+ + + + (2) + +

Spar had given advance notice that it would ask the court to draw adverse inferences from the failure of Mr Li to give evidence. Although he has left GCL, it had access to him as a cooperative and potentially available witness who agreed to provide a statement. In advance of the trial GCL adduced no evidence as to why Mr Li was not to be called as a witness. The Court will only take into account evidence, not submission, which is tendered as an explanation for failure to call a witness if advance notice has been given that the court will be invited to draw an adverse inference: see Imam-Sadeque v Bluebay Asset Management [2012] EWHC 3511 (QB) at paragraph [10]. In his opening, Mr Coburn submitted on instructions (from what GCL had told his instructing solicitors, not as a result of any direct contact between the solicitors and Mr Li) that Mr Li was unwilling to attend. Mr Phillips said that he was prepared to treat this as being evidence. I therefore proceed on the basis that the explanation for his absence is not incapacity or unavailability but simply an unwillingness to give his evidence on oath and face cross examination. There was no information from GCL, still less evidence, as to why Mr Li was unwilling to give evidence. Mr Coburn speculated that it might have been the result of a reluctance to travel a long distance to be subjected to an ordeal in a hostile foreign environment. This is illegitimate speculation, but in any event would not explain an unwillingness to give evidence by video link. In the absence of further explanation, it is permissible to draw the conclusion that he was unwilling to give his evidence on oath and have the evidence tested by questioning because he did not think it would stand scrutiny.

+ + + + (3) + +

This is an inference which gains strength from other aspects of his statement which are inconsistent with evidence in the case in important respects:

+ + + (a) + +

Mr Li suggested that guarantees of the type in issue in this action would only be signed by him. This is inconsistent with the signature by Mr Jia of such guarantees on at least six separate occasions in 2010. This is not explained by Mr Li who makes no reference to the other guarantees signed by Mr Jia in his statement.

+ + + + (b) + +

Mr Li asserted that only he, as the Legal Representative, could collect the company seal from the administration department of GCL, where it was kept, and apply it to contracts. This is inconsistent with the five guarantees executed by Mr Jia which bear the chop.

+ + + + (c) + +

Mr Li provides no explanation for being ignorant of the Guarantees in the face of the apparent approval of the charters by the board of GCS, of which he was a member, in circumstances where the charters expressly referred to the fact that they were to be guaranteed by GCL.

+ + + + + (4) + +

Mr Li’s statement leaves many questions unanswered. If the internal procedures required submission to the compliance department, the financial department, the board and then him, why did none of these take place? Or if authorisation was declined somewhere in the chain, when, and by whom, and why? And if so why were Spar not so informed? Or if the authorisation process was never initiated, how is that to be reconciled with the correspondence suggesting that it was, and the express requirement in the fixture that there should be guarantees? And again, if so, why was Spar not informed? What explanation could there be for Mr Jia executing the Guarantees when he knew he was not authorised to do so? He could hardly have expected the fact that he had done so to be secret from others. GCL’s case involves the improbable assumption that Mr Jia was on an unexplained frolic of his own in signing these Guarantees, of which no one else within GCL or HNA was aware for several years.

+ + + + + 82. + +

In the light of these considerations I conclude, without any real hesitation, that Mr Li expressly authorised Mr Jia to sign the Guarantees; alternatively, and at the very least, that Mr Li knew at the time that Mr Jia was going to sign them so as to purport to bind GCL and did nothing to repudiate his authority or ability to bind GCL by doing so.

+ + + + 83. + +

I also conclude that in signing the Guarantees, Mr Jia was conducting duty related activities within the meaning of the Chinese law principle I have found to be established.

+ + + + 84. + +

GCL is therefore bound by the Guarantees.

+ + + + 85. + +

This conclusion renders it unnecessary to address issues of ratification and ostensible authority, but in case I be wrong on actual authority I will state my conclusions briefly.

+ + + +

Ostensible authority

+ + + + + 86. + +

This issue is governed by English law as the putative proper law of the contract. The principles were not in dispute, and are summarised in Bowstead & Reynolds on Agency 20th edn at Article 72. Spar submitted that GCL held Mr Jia out as the person authorised to execute the Guarantees by putting him in a position of sufficient seniority to sign and deliver them purporting to act on behalf of GCL, and giving him access to the company seal. GCL contended that Spar had not relied on any relevant representation by GCL: Spar had drafted the Guarantees and intended that they should be signed by the Chairman. Spar’s mistake was in thinking that Mr Jia was the Chairman. GCL did nothing to hold Mr Jia out as the Chairman.

+ + + + 87. + +

Although Mr Ellefsen confirmed in his statement and his oral evidence that he assumed that Mr Jia was the Chairman, it would be inaccurate to treat his evidence as being that that was the complete extent of his reliance on the provision of the documents by GCL. It was clear from his evidence as a whole that he was treating the return of the signed Guarantees by GCL as a representation that the signatory was authorised to execute them on behalf of the company. That is sufficient to establish reliance on a holding out by GCL that Mr Jia was so authorised. Had I concluded there was no actual authority, I would have held GCL bound by reason of ostensible authority.

+ + + +

Ratification

+ + + + + 88. + +

In Sea Emerald SA v Prominvestbank v Joint Stockpoint Commercial Industrial and Investment Bank [2008] 1 Lloyd’s Rep 96 Andrew Smith J summarised the relevant principles at paragraphs [102] to [103] in the following terms:

+ + + + “102. + +

The principles governing ratification by a purported principal of an act done in his name were considered by Waller J in Suncorp Insurance and Finance v Milano Assicurazioni SPA [1995] 2 Lloyd’s Rep 225 especially at page 234 and by Moore-Bick J in Yona International Limited v La Reunion Francaise SA [1996] 2 Lloyd’s Rep 84 especially at pages 103 and 106. Ratification may be implied as well as express, and there is no requirement that it be communicated to either the agent or the person with whom the agent entered into the contract: it operates as a unilateral manifestation of will. Mere acquiescence or inactivity may be sufficient to constitute ratification. However, it involves a conscious decision to adopt an unauthorised act, and in order for there to be ratification:

+ + + + (i) + +

The act of ratification must be that of the principal or of someone competent at the time of ratification to make the contract in question or to do the relevant act for the principal.

+ + + + (ii) + +

The person ratifying the agent’s conduct must know of all the material circumstances, unless he evinces an intention to ratify the contractual or other act regardless of them.

+ + + + (iii) + +

In a case of ratification through silence and inactivity, it must be such as to manifest unequivocally an intention to adopt the act in question.

+ + + + 103. + +

In the Yona International case, Moore-Bick J said this (at page 106), which to my mind has some application to this case:

+ + + + +

‘The essence of ratification is a decision by the principal to adopt the unauthorized act as his own. It does not therefore depend on communication with or representation to the third party and is thus in principle distinct from estoppel, but since the intention to ratify must be manifested in some way it will in practice often be communicated to and relied upon by the other party to the transaction. Ratification can no doubt be inferred without difficulty from silence or inactivity in cases where the principal, by failing to disown the transaction, allows a state of affairs to come about which is inconsistent with treating the transaction as unauthorized. That is probably no more than a form of ratification by conduct. Where there is nothing of that kind, however, the position is more difficult since silence or inaction may simply reflect an unwillingness or inability on the part of the principal to commit himself. For that reason it will not usually be sufficient to evidence ratification, nor will it amount to an unequivocal representation sufficient to give rise to an estoppel.’”

+ + + + + + + + 89. + +

On 31 December 2010, Mr Li ceased to be employed by GCL and by board resolutions of the same date Mr Jia was appointed Chairman and Legal Representative of GCL. He remained in that position until 10 September 2012. Throughout that period he had authority to ratify the Guarantees which he had signed as Chairman of the Executive Board in March 2010 and of which he was aware.

+ + + + 90. + +

The only reasonable conclusion from the evidence is that during this period, Mr Jia actively and unequivocally adopted as Chairman and Legal Representative the Guarantees which he had signed as Chairman of the Executive Board. That is sufficient manifestation to ratify the Guarantees if, contrary to my earlier findings, they were not authorised when entered into. Such conduct is to be inferred from the absence of any internal documentation, or any external communication, which suggests that Mr Jia ever expressed any doubt about the validity of the Guarantees at any time before his departure from GCL in September 2012. His conduct internally must have amounted to positively accepting their validity because it is unrealistic to suppose that the Guarantees were never known about or discussed by senior management within GCL and HNA. The Guarantees must have come to the attention of senior management within GCL when Spar called on them on 16 September 2011 at the latest. It seems probable that they would have done so earlier, as is suggested by Mr Tan’s comments at the meeting at the beginning of August 2011, not least because they were referred to on the face of the charterparties which must have been under discussion when GCL’s cash support of GCS was under consideration. This conclusion is reinforced by a Lloyd’s List report relied on by GCL, which reports that in April 2012 a number of GCL executives were “punished” for payment disputes affecting the company; it is to be inferred that amongst these were Spar’s claims on the Guarantees. Mr Jia was said to have “recorded a serious demerit” but remained in his post as Chairman for a further 8 months.

+ + + +

SAFE

+ + + + + 91. + +

GCL’s argument in relation to SAFE was that although the Guarantees are expressly governed by English law, Chinese law is mandatorily applicable because of the provisions of Article 3.3 of the Rome Convention. Mr Coburn acknowledged a difficulty in articulating any basis on which such provisions could apply to a charter with a Norwegian shipowner requiring payment of hire at a Norwegian bank account. A similar argument was advanced in The Vine [2011] 1 Lloyds Rep 301 and rejected by Teare J for reasons given at paragraphs [172] to [179]. I reject the argument in this case for similar reasons. In any event, even were SAFE provisions relevant, they would not assist GCL because they do not render a guarantee unenforceable for non registration where the guarantor is at fault, and in this case the fault for not registering the Guarantees lay solely with GCL.

+ + + + Issue 2: Is payment of hire a condition of the charterparties? + + +

The doctrine of precedent

+ + + + + 92. + +

Is payment of hire in a time charter a condition? This question was answered in the negative by the decision of Brandon J, as he then was, in Tenax Steamship Co Ltd v Reinante Transoceanica Navegacion SA (The Brimnes) [1973] 1 WLR 386. More recently Flaux J reached the opposite conclusion in Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra) [2013] 2 Lloyd's Rep 69 after a careful review of the authorities, including a number decided at the highest level since The Brimnes.

+ + + + 93. + +

Mr Phillips urged me to follow the decision of Flaux J in The Astra on the basis of a principle that where a judge of the High Court is confronted with two conflicting High Court authorities, and where the earlier decision has been fully considered but not followed in the second decision, the matter should be treated as settled by the second decision at that level. In Minister of Pensions v Higham [1948] 2 KB 153, p. 155, Denning J stated that he would “follow the general rule that where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decision is to be preferred, if it is reached after full consideration of the earlier decision.” In Colchester Estates (Cardiff) v Carlton Industries [1986] Ch 80 Nourse J. cited this passage and went on to say at p. 85 D-H:

+ + + + +

"That unqualified statement of a general rule comes from a source to which the greatest possible respect is due. It is fortuitous that my own instinct should have coincided with it. However diffident I might have been in relying on instinct alone, the coincidence encourages me to suggest a reason for the rule. It is that it is desirable that the law, at whatever level it is declared, should generally be certain. If a decision of this court, reached after full consideration of an earlier one which went the other way, is normally to be open to review on a third occasion when the same point arises for decision at the same level, there will be no end of it. Why not in a fourth, fifth or sixth case as well? Mr. Barnes had to face that prospect with equanimity or, perhaps to be fairer to him, with resignation. I decline to join him, especially in times when the cost of litigation and the pressure of work on the courts are so great. There must come a time when a point is normally to be treated as having been settled at first instance. I think that that should be when the earlier decision has been fully considered, but not followed, in a later one. Consistently with the modern approach of the judges of this court to an earlier decision of one of their number (see, e.g., Police Authority for Huddersfield v. Watson [1947] K.B. 842, 848, per Lord Goddard C.J.), I would make an exception only in the case, which must be rare, where the third judge is convinced that the second was wrong in not following the first. An obvious example is where some binding or persuasive authority has not been cited in either of the first two cases. If that is the rule then, unless the party interested seriously intends to submit that it falls within the exception, the hearing at first instance in the third case will, so far as the point in question is concerned, be a formality, with any argument upon it reserved to the Court of Appeal."

+ + + + + + + + 94. + +

This approach was endorsed in relation to conflicting Court of Appeal decisions by Lord Neuberger MR in Patel v Secretary of State for the Home Department [2013] 1 WLR 63 at paragraph [59].

+ + + + 95. + +

Although the point is ultimately one of construction of clause 11 of these charters, it is a question of general application and importance to the shipping community. Commentary following the decision in The Astra suggests that Flaux J’s decision has not been universally welcomed or treated as settling the position. I have heard argument on the point and would regard it as intellectually pusillanimous not to form a concluded view. Having done so, I have the misfortune to differ from the conclusion reached by Flaux J. In those circumstances I feel bound to decide this case in accordance with what I regard to be the law and to explain my reasons for differing from Flaux J on this issue.

+ + + +

Terminology

+ + + + + 96. + +

It is convenient to start with a number of uncontroversial propositions, which are supported by authorities too numerous to mention. Helpful exposition is to be found in the judgments of Devlin J in Universal Carriers v Citati [1957] 2 QB 401 at pp. 436-8, Diplock LJ in Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 Q.B. 26 at pp. 69-70, Lord Diplock in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at pp. 848-850, and Mustill LJ in Lombard Plc v Butterworth [1987] QB 527 at pp. 535-536. I set them out because although the principles are well established, there is sometimes room for ambiguity in the terminology used to express them.

+ + + (1) + +

There are essentially three categories of conduct by one party to a contract which may entitle the innocent party to treat the contract as at an end, namely (a) a total or partial failure to perform obligations which have fallen due, (b) conduct which evinces an intention not to perform future obligations when they fall due, and (c) impossibility to perform future obligations when they fall due created by the defaulting party’s own act. The first is actual breach. The second and third, commonly termed renunciation and self induced impossibility respectively, are the two forms of anticipatory breach.

+ + + + (2) + +

In the absence of any relevant contractual or statutory provision, the innocent party’s right to treat the contract as terminated will depend upon whether the term breached is to be categorised as a condition, a warranty or an innominate term. Any breach of a condition will entitle the innocent party to terminate the contract. Only a sufficiently serious breach of an innominate term will do so, often expressed as one which goes to the root of the contract or one which deprives the innocent party of substantially the whole benefit of the contract. The expression repudiatory breach is sometimes used to cover only a breach of an innominate term, in distinction to a breach of condition; sometimes it is used to cover both. I shall use it to cover both. It is also commonly used to describe the form of anticipatory breach directed to performance of future obligations, which I prefer to call renunciation. Elision between use of the terms repudiation and renunciation is common in the cases, not least because an actual breach may itself evince an intention not to perform in the future and therefore be renunciatory. But use of the word repudiatory to refer to conduct which is relevant not as actual breach in the past but only insofar as it casts light on future performance may lead to confusion of thought, and I prefer to use it only to describe a category of actual breach.

+ + + + (3) + +

Where there is a repudiatory breach or renunciation, the innocent party is entitled to elect to terminate the contract. If he does so, the consequence is that (a) each party is relieved from its obligations to render any further performance under the contract; and (b) the innocent party is entitled to damages for loss caused by the breach, which includes loss flowing from the termination. For the purpose of assessing damages, it is the defaulting party’s repudiatory breach or renunciation which is regarded as the cause of the termination, not the innocent party’s election to terminate.

+ + + + (4) + +

Other language has been used to describe a “condition”, used in this sense as a term any breach of which is sufficient to give rise to a right to terminate. Where the obligation in question falls to be performed by a certain time, the question has often been formulated as "whether time is of the essence”. Other formulations include whether the term is an essential term or a fundamental term, although Lord Diplock who has played a large part in the development of the jurisprudence in this area, uses the expression fundamental breach to connote a repudiatory breach of an innominate term in contradistinction to a breach of condition.

+ + + + (5) + +

It is possible by express provision in the contract to make a term a condition, even if it would not be so in the absence of such a provision. So a stipulation that time is of the essence, in relation to a particular contractual term, denotes that timely performance is a condition of the contract. The consequence is that delay in performance is treated as repudiatory, without regard to the gravity of the breach, such that the injured party may elect to terminate and recover damages in respect of the defaulting party’s outstanding obligations.

+ + + + + 97. + +

A contractual term may, however, provide for termination in the case of breach without the parties intending the consequences to be the same as would arise at common law if the term breached were categorised as a condition. Parties may agree that in the event of breach the innocent party should have the right to terminate the contract, so as to put an end to future performance obligations under the contract, but without intending that the defaulting party should be liable for any consequences of the termination. Such provisions are concerned solely to provide the innocent party with an option to put an end to his performance obligations, but not to confer a right to claim damages flowing from the termination itself. In such cases it is the innocent party’s election to exercise his option to terminate which is treated as the cause of the termination, and the cause of whatever loss flows from it, not the breach which triggers the innocent party’s right to cancel. I shall use the expression “option to cancel” to connote such a term, whilst recognising that contractual language couched in terms of cancellation may be equally consistent with an intention to treat the term breached as a condition with the full damages consequences which flow from that analysis.

+ + + + 98. + +

Such an option to cancel leaves unaffected the innocent party’s rights to claim damages, which remain governed by the common law principles set out above. If there has been a repudiatory breach or renunciation, the right to damages is preserved; if there has been no repudiatory breach or renunciation, the option to cancel does not confer a right to damages, in the absence of clear language to the contrary, but merely confers a right to put an end to future performance obligations.

+ + + + 99. + +

The applicability of these principles to options to cancel is apparent from the Court of Appeal decision in Financings Ltd v Baldock [1963] 2 QB 104. In that case a contract for hire purchase of a truck provided for payment of a deposit and monthly instalments over a period of two years. The hirer failed to pay the first two instalments. The owner terminated the agreement and retook possession of the truck pursuant to clauses 8 and 9 of the contract which provided that if the hirer failed to pay any instalment within 10 days after it had become due “the owner may by written notice forthwith and for all purposes terminate the hiring” and “without notice retake possession” of the truck. Having retaken possession and sold the truck at a loss, the owner claimed damages representing the difference between the two years’ hire due under the contract and the resale price. It was held that the owner was confined to a claim for the two instalments which had fallen due prior to the termination. The owner argued, among other things, that the effect of the clause giving the right to terminate was to elevate the term providing for punctual payment to the status of a condition (see p.108). This argument was rejected. At pp. 110 – 111, Lord Denning said:

+ + + + +

“It seems to me that when an agreement of hiring is terminated by virtue of a power contained in it, and the owner retakes the vehicle, he can recover damages for any breach up to the date of termination but not for any breach thereafter, for the simple reason that there are no breaches thereafter. I see no difference in this respect between the letting of a vehicle on hire and the letting of land on a lease. If a lessor, under a proviso for re-entry, re-enters on the ground of non-payment of rent or of disrepair, he gets the arrears of rent up to the date of re-entry and damages for want of repair at that date, but he does not get damages for loss of rent or for breaches of repair thereafter.”

+ + + + + + + + 100. + +

At pages 111-112 Lord Denning endorsed the view expressed by Salter J in Elsey & Co Ltd v Hyde (1926), an unreported case quoted by Jenkins LJ in Cooden Engineering Co v Stanford [1953] 1 QB 86, 102, that in the absence of repudiatory breach or renunciation, the owner’s loss of bargain following exercise of a contractual right of termination was not the result of the hirer’s breach in making late payments, but of the owner’s election to exercise his right to determine the contract. Lord Denning went on to consider Yeoman Credit Ltd v Waragowski [1961] 1 WLR 1124, Overstone Ltd v Shipway [1962] 1 WLR 117 and Bridge v Campbell Discount Co [1962] AC 600, identifying that in each of those cases there had been conduct renouncing performance of future obligations which would give rise to a right to terminate independently of the contractual right of termination. Using the language of repudiation to include renunciation of future obligations, he said of these authorities at pp. 112-113:

+ + + + +

“Once the hirer repudiated his liability for future rentals, the owners were entitled to treat the repudiation as itself a breach going to the root of the contract: and, on accepting it as such, they were entitled to regard the hiring as at an end and retake the vehicle. The repudiation being itself a breach which took place before the termination, it is within the class of breaches for which the owners can recover damages according to the principle I have already stated. But if there is no repudiation, and simply, as here, a failure to pay one or two instalments (the failure not going to the root of the contract and only giving a right to terminate by virtue of an express stipulation in the contract), the owners can only recover the instalments in arrear, with interest, and nothing else; for there was no other breach in existence at the termination of the hiring.”

+ + + + + + + + 101. + +

Diplock LJ observed that the time of payment was not “of the essence of the contract” (p. 118) and that clause 8 entitled the owner to terminate upon the occurrence of a number of events, not all of which were breaches of contract by the hirer. He stated that the hirer had not committed a breach which went to the root of the contract in failing to pay two instalments, or thereby evinced an intention no longer to be bound by the contract, so that in the absence of a contractual provision the owner would have no right to terminate and no right to damages beyond the instalments in arrears (p.120). He went on to say pp.120-121:

+ + + + +

“….. in the absence of express provision to the contrary, the non-payment of two instalments would not be an event which relieved the owners from their undertaking to do what they had agreed to do but had not yet done.

+ + + + +

As I ventured to point out in Hongkong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd, parties to a contract may incorporate in it provisions which expressly define the events, whether or not they amount to breaches of contract, which are to have this result. But such a provision of itself may do no more than define an event which of itself, or at the option of one or other of the parties, brings the contract to an end and thus relieves both parties from their undertakings further to perform their obligations thereunder. Whether or not it does more than this and confers any other rights or remedies on either party on termination of the contract, depends on the true construction of the relevant provision.”

+ + + + + + + + 102. + +

After consideration of the authorities he summarised their effect at p. 123 as being that

+ + + + +

“…where one party has done something which the law…regards as a wrongful repudiation of the contract and the other party has thereupon determined the contract, whether under an express power contained in the contract or in the exercise of his right to do so under the common law, he is entitled to damages for non-performance of the contract during the period that it has still to run; but … if that party has not done something which the law regards as a wrongful repudiation of the contract, the other party, although he may be entitled under an express power to determine the contract, is not entitled to damages for non-performance of the contract during the period for which it would have continued to run but for such determination.”

+ + + + + + + + 103. + +

Upjohn LJ concurred in the result, making clear that the critical factor (“the essence of the case”: p.114) was that the hirer had not repudiated the contract by failing to pay two instalments.

+ + + + 104. + +

Financings v Baldock does not immediately provide the answer to the question whether non payment of hire in a time charter is a condition. There are important differences between a time charter and a hire purchase agreement. Moreover the contract in that case provided for termination upon events which were not confined to breaches; and there was a clause providing for interest on late payment which Diplock LJ treated as significant in indicating that time of payment was not intended to be of the essence. These are significant distinctions. The case does, however, illustrate that the mere fact that a contractual right of termination is conferred for any breach of a term, however trivial, does not answer the question whether the term is a condition.

+ + + + 105. + +

The critical question in this case is whether the contractual right to terminate by withdrawal of the vessel for non payment of hire conferred by clause 11 is to be construed as indicating that the parties intended that payment of hire was a condition, or whether it is to be construed simply as an option to cancel in circumstances where payment of hire is an innominate term and a breach will not give rise to a right to damages in the absence of a repudiatory breach or renunciation.

+ + + + 106. + +

Although the question is ultimately one of construction of clause 11 of these charters, it is convenient first to review the authorities on time charter withdrawal clauses, then those dealing with categorisation of terms and time being of the essence in mercantile contracts, before considering the language of the clause and my analysis and conclusions.

+ + + +

The time charter withdrawal authorities.

+ + + + + 107. + +

The earliest case considered by Flaux J in The Astra is Italian State Railways v Mavrogordatos (The Antonios Mavrogordatos) [1919] 2 KB 305. The wording of the withdrawal clause was essentially the same as that in the 1946 New York Produce Exchange form. The monthly advance hire payment fell due on 10 January, the owners withdrew the vessel on 11 January and the owners claimed hire up to completion of discharge on 23 January. I respectfully agree with the analysis of the case by Flaux J at paragraphs [45] to [52] of The Astra, and his conclusion that it is no part of the ratio of the decision that the provision for payment of hire was not a condition, subject to one observation. Amongst other things the owners argued that the hire was due as damages for non payment on 10 January, prior to termination. This argument was addressed and dismissed by Duke LJ at pp. 313-314 in the following terms:

+ + + + +

“Then it was said that the owner, if not entitled to freight under that clause, is entitled to damages to an equal amount for the charterers’ breach of contract, the breach being the failure of the charterers to pay punctually the hire due on January 10, that this breach occurred while the ship was beyond the reach of the owner so that he could not resume effective control of her, and that therefore he is entitled as damages to an amount equal to hire for the period from January 11 to January 23 when he got possession of his ship at Barry. That argument is fallacious. The non-payment of the hire was not the cause of loss, if any, incurred by the owner through not getting possession of his ship till January 23. The real cause was his own act in withdrawing his ship of his own volition on January 11 when he was well able to make an advantageous choice between leaving control to the charterers and assuming it himself. Having done that act, presumably with a just view of his own interest, he cannot rely upon it as giving him a right to damages.”

+ + + + + + + + 108. + +

This reasoning supports an analysis of the withdrawal clause as an option to cancel: it is not to be treated as conferring rights to damages flowing from the termination because those are caused by the exercise of the option to terminate, not the failure to pay hire which gave rise to the right to terminate.

+ + + + 109. + +

Next to be considered is the decision of Greer J in Leslie Shipping Co v Welstead [1921] 3 KB 420. In that case owners were claiming damages for loss of bargain in a falling market following exercise of the right to withdraw for non payment of hire. The charterparty was on the Baltime form providing “in default of such payment the owners shall have the faculty of withdrawing [the vessel] from the service of the charterers”. The charterers argued that the damages were caused by owners’ decision to withdraw rather than the non payment of hire. Owners argued that the damages were the natural and probable consequence of the non payment of hire. In rejecting charterers’ argument, Greer J said at pp. 425-426:

+ + + + +

“On the whole my view is that the damages arise as the natural and probable consequence of the defendant’s breach of contract in failing to pay the two instalments of hire which were due at the time of the withdrawal.”

+ + + + + + + + 110. + +

In The Astra, Flaux J described the reasoning as broadly helpful to the argument that payment of hire was a condition, although providing a somewhat uncertain foundation upon which to base any firm conclusion in the light of Greer J’s view that the charterers were in repudiatory breach. For my part I do not think that the case provides even this limited assistance. Greer J was not concerned to decide whether any breach of the hire obligation gave rise to a right to terminate, and his determination that the non payment was repudiatory in that case is at most neutral on whether the term was a condition. The decision was that where non payment of hire is repudiatory, the exercise of the contractual right to withdraw does not cut down the entitlement to loss of bargain damages which exists independently of the clause. As such, it does not advance the current debate.

+ + + + 111. + +

Tankexpress A/S v Compagnie Financiere Belge des Petroles S/A (The Petrofina) [1949] AC 76 was the first in a number of cases which emphasised a strict approach to the charterers’ obligation to pay hire in the context of construing withdrawal clauses. The clause in that case was on the Baltime form providing for payment of cash in London, but the practice of the owners had been to accept payment by cheque. Hire fell due on 27 September 1939 and a cheque was posted from Belgium on 25 September, but due to the outbreak of the war it did not arrive until October. In the meantime the owners withdrew the vessel on 30 September. The House of Lords held that the owners were not entitled to withdraw because the charterers had performed the hire payment obligation in accordance with accepted practice by sending a cheque by post. The potential relevance of the decision for present purposes lies in a passage in the speech of Lord Wright at pp. 94-95:

+ + + + +

“Default in payment, that is, on the due date is not in my opinion excused by accident or inadvertence. The duty to pay is unqualified so far as the express terms of the charterparty go. I think this is the true construction of the terms of the contract, and it is confirmed by the cases cited in argument. A dictum or decision of Bigham J. in Nova Scotia Steel Co., Ld. v. Sutherland Steam Shipping Co., Ld. (1899) 5 Com. Cas. 106, has been relied upon as an authority that a certain latitude was permissible so that payment made two days after the due date did not constitute a default in payment. But I cannot agree that so drastic a departure from the specific words of the charter can be supported. In that case the clause provided for regular and punctual payment: these adjectives however add nothing to the stringency of the simple and unqualified language in the charter before this House. I think that so much of Bigham J’s judgment as conceded a latitude as to the date of payment is erroneous in law and should be overruled. The importance of this advance payment to be made by the charterers, is that it is the substance of the consideration given to the shipowner for the use and service of the ship and crew which the shipowner agrees to give. He is entitled to have the periodical payment as stipulated in advance of his performance so long as the charterparty continues. Hence the stringency of his right to cancel.”

+ + + + + + + + 112. + +

The other speeches each expressed the same disapproval of Bigham J’s approach in the Nova Scotia case that charterers were allowed a certain latitude under the clause: Lord Porter at p. 91, Lord Uthwatt at p. 99, Lord Du Parcq at p.102, and Lord Morton at p. 107.

+ + + + 113. + +

In The Astra at paragraph [58], Flaux J said of the passage in the speech of Lord Wright:

+ + + + +

“The significance of that passage, as I see it, is that although it does not state in terms that the provision for payment of hire is a condition, Lord Wright’s reasoning is clearly predicated upon it being an essential term of the contract, which, as other cases demonstrate, is synonymous with the provision being a condition.”

+ + + + + + + + 114. + +

I cannot attach the same significance to the passage. What is said here, and in passages in the later authorities identifying the importance to owners of full and punctual advance payment of hire, is that they afford good reasons for construing a clause conferring the right to withdraw as having the stringency which its clear language suggests. They explain why there should be no inclination to construe the words in the withdrawal clause which trigger the right to withdraw with any latitude, or otherwise in accordance with their plain terms. If the owner is not paid fully and on time in advance, effect should be given to the right for which he has bargained, in unqualified terms, no longer to provide the services of the master and crew to the defaulting charterer, and to be free to employ his vessel elsewhere. But this says little, if anything, about whether a trivial breach should additionally carry with it a liability on the charterers to pay damages in respect of the unexpired term of the charter. If full and punctual advance payment of hire is the lifeblood of the owner, on which he is entitled to insist, a withdrawal clause which amounts to an option to cancel adequately protects this commercial interest: once exercised the owner is free to employ his vessel elsewhere, trusting to the performance of a different charterer to pay hire fully and punctually in advance. I see nothing in the owner’s interest which is not adequately protected by an option to cancel. This interest does not require the term to be construed as a condition, and nothing in the passage from Lord Wright’s speech suggests such an analysis. There is no mention of the term being one making time of the essence, or being an essential term. The passage, and those in subsequent authorities which emphasise the importance to owners of full and punctual advance payment of hire, are to my mind equally consistent with a withdrawal clause being an option to cancel, which is to be construed as having the stringency which its unqualified language suggests whilst not treating the non-payment as conferring any additional rights or obligations which would not exist apart from the withdrawal clause.

+ + + + 115. + +

Construction of the withdrawal clause in the Baltime form again fell to be considered in Empresa Cubana de Fletes v Lagonisi Shipping Co Ltd (The Georgios C) [1971] 1 QB 488. In that case the clause provided for hire to be payable to the owners’ London bank and the accepted method of payment was by tender of a banker’s payment order from the charterers’ correspondent bank. The relevant instalment fell due by midnight on a Saturday. As a result of charterer’s mistaken belief that because banks were shut on a Saturday, payment on the following Monday would be timeous, the banker’s payment order was not tendered until the Monday morning. The owner’s bank, in accordance with owners’ instructions, refused to accept payment on the Monday and owners then gave notice of withdrawal that evening. The parties first came to the Commercial Court on Wednesday of the following week, the trial with oral evidence was concluded on the Friday, with Donaldson J giving judgment after the weekend only a fortnight after the events in dispute. He observed that “The Commercial Court exists to serve the national and international community. It has no other purpose. If the need is for a speedy decision, this is the service which can and will be provided.” That is as true now as it was then.

+ + + + 116. + +

The Baltime withdrawal clause provided that “In default of payment the owners to have the right of withdrawing the vessel from the service of the charterers….without any formality whatsoever and without prejudice to any claim the owners may otherwise have on the charterers under the charter …” Since the market had risen by some 30% and the only question in issue was whether owners had the right to withdraw, not any damages claim, it did not matter in that case whether the withdrawal was the exercise of a contractual or common law right. Nevertheless Donaldson J and the Court of Appeal were addressing an argument by Mr Hobhouse QC, as he then was, that the effect of the withdrawal clause was to treat the payment of hire as a condition. The argument at first instance is recorded as being that “the charterparty imposes an obligation on the charterers to pay hire in advance, that time is of the essence, and that breach of this obligation gives rise to a contractual right to end the charterparty” (p. 494C). In the Court of Appeal, where the argument is reported more fully, it is clear that Mr Hobhouse was arguing that non payment of hire was a breach of condition at common law given the terms of the clause, and that The Petrofina was authority on the same clause to that effect: see p. 498C-F, 501F-G, and the responsive argument of Mr Staughton QC, as he then was, for the charterers recorded at p. 500E-H.

+ + + + 117. + +

Donaldson J said at p. 494E-H:

+ + + + +

“It is important to remember that in relation to the payment of hire under a time charterparty, time is of the essence of the contract only in the sense that there is a breach of contract if payment is a moment late. It is not of the essence of the contract in the sense that late payment goes to the root of the contract and is a repudiating breach giving rise to a common law right in the owners to treat the contract as at an end. The right to withdraw the vessel and thus bring the charterparty to an end is contractual and the situations in which this right is exercisable depend upon the true construction of the contract. In the present case the words are ‘In default of payment’. Does this mean ‘If there has been default in payment’ or does it mean ‘Whilst there is default in payment’? If it means the former, a shipowner can take his time considering whether or not to withdraw the vessel and there is no action which the charterer can take to retrieve the position, although a stage will eventually be reached when, in the absence of a withdrawal of the vessel, it can be said that the owner has waived his rights. If it means the latter, the owner can still withdraw the vessel if he acts promptly, but the charterer can retrieve the situation if he pays or tenders the hire before the owner acts.

+ + + + +

“Both the wording of the clause and the drastic nature of the right conferred on the owners lead me to the conclusion that the right of withdrawal is intended as a spur to timeous payment, which subsists only so long as there is an absence of payment rather than a punishment for late payment. Once payment has been made, whether late or in time, there is no further need for such encouragement. The words are ‘In default of’ which I construe as ‘in the absence of’.”

+ + + + + + + + 118. + +

In the Court of Appeal Lord Denning MR said at p.504D-G:

+ + + + +

“The effect of a stipulation as to time always depends on the true construction of the contract. A default in payment does not automatically give the other a right to determine it. Usually it does not do so. It only does so if there is an express provision giving the right to determine, or if the non-payment is such as to amount to a repudiation of the contract. That is shown by Martindale v. Smith, (1841) 1 Q.B. 389; and by the well-known judgment of Lord Blackburn in Mersey Steel and Iron Company (Ltd.) v. Naylor, Benzon & Co., (1884) 9 App. Cas. 434, at p. 444. In the present case the non-payment was clearly not such as to amount to repudiation. It was obviously a mistake. The charterers thought that as the banks were closed on Saturday and Sunday, Monday would do. They were wrong in so thinking. But they were not repudiating the contract. Then does the clause itself give the shipowners the right to withdraw? I think it does, as the Tankexpress case shows, provided always that they exercise the right before payment is made or tendered. I think in this clause the words “in default of payment” mean “in default of payment and so long as default continues”. It means that the owners have the option — so long as the charterers are in default — to withdraw the vessel. But, once the charterers remedy their default, by paying the instalment or tendering it, the owners have no right to withdraw.”

+ + + + + + + + 119. + +

Phillimore and Cairns LJJ delivered concurring judgments in terms which I do not regard as making what Lord Denning said in the passage quoted as part of the ratio of the decision of the Court. Both simply held that the right to withdraw which had arisen did not subsist after tender of payment. Phillimore LJ’s essential reasoning (p. 506E-F) was that charterers’ rectification of default by tender of payment prior to withdrawal prevented such withdrawal being valid on the authority of the Privy Council case of Langfond (Owners) v Canadian Forwarding and Export Co (1907) 96 LT 559. Cairns LJ held that “for the reasons that my Lords have given, I agree that as this payment was tendered before the withdrawal, the right to withdraw was lost” (p. 507D).

+ + + + 120. + +

I come to The Brimnes, which was concerned with the NYPE 1946 form. The charterparty was on the NYPE 1946 form and clause 5 provided for hire to be paid monthly in advance in cash to Morgan Guarantee Trust (“MGT”) in New York for the credit of the owners’ account and that “failing the punctual and regular payment of the hire . . . or any breach of this charterparty, the owners shall be at liberty to withdraw the vessel . . . without prejudice to any claim they . . . may have on the charterers”. The dispute which arose concerned the alleged late payment of the monthly instalment of hire payable on 1 April 1970. The charterers’ bank, Hambros, usually used a method of transferring funds which involved their sending a telex to MGT, with whom they had an account, asking them to pay the hire to the owners’ account, specifying the value date. On receipt of the telex MGT would carry out a process resulting in Hambros’ account being debited and the owners’ account credited with the relevant dollar amount. Debit and credit advices would be sent to Hambros and the owners’ London agents respectively. At the trial before Brandon J it was in dispute between the owners and the charterers when the time of payment was under this method of transfer. The charterers contended it was the time of receipt on MGT’s telex machine of Hambros’ order to pay or, if the telex came before the value date, when MGT first opened for business on the value date. The owners contended that the time of payment was later, when MGT took the decision to debit Hambros’ account and credit the owners’ account. Even on the charterers’ case the 1 April 1970 payment was paid late. The owners withdrew the vessel.

+ + + + 121. + +

A number of issues arose before Brandon J, the first of which was whether the owners had withdrawn the vessel before or after the admittedly late payment of hire. This involved complex and contested issues of fact and law which were the subject of extensive evidence on both sides at trial. Brandon J concluded that the time of payment was, as the owners contended, when MGT made the decision to debit Hambros’ account and credit the owners’ account (page 402C) and that the notice of withdrawal was received by the charterers before payment was made (page 406B to D). He then said at page 406E: “In dealing with the rights of the parties I shall proceed primarily on the basis that the withdrawal was before the payment. I shall, however, consider also what those rights would be if I am wrong about that and either the payment was before the withdrawal or the evidence leaves in doubt which of the two events preceded the other”.

+ + + + 122. + +

Owners relied on three alternative grounds justifying termination, one being that the failure to pay hire was a breach of condition (an “essential term” in the language used by Brandon J); the second being, alternatively, that the non payment was a repudiatory breach of an innominate term; and the third being that there was a contractual right of termination under the terms of the withdrawal clause. Charterers relied on the The Georgios C in respect of the first and third arguments, contending that it was authority that the term was not a condition, and that the clause was to be construed as applicable only for so long as hire was not paid or tendered.

+ + + + 123. + +

On the condition point, the relevant passage in Brandon J’s judgment (pp. 406G-408C) records the starting point as a concession by Mr Evans QC, as he then was, as counsel for the owners, that The Georgios C was binding, and addresses rival arguments as to whether that case governed the question or was distinguishable. Brandon J cited the passages from Donaldson J and Lord Denning set out above and rejected the arguments of Mr Evans for distinguishing the case in these terms at pp. 407H-408C:

+ + + + +

“It was argued by Mr Evans that there were two features of clause 5 of the charterparty in this case, not present in clause 6 of the charterparty in [The Georgios C. ie the Baltime form] which showed that the parties intended the obligation to pay hire by a certain date to be of the essence of the contract. These were, first, the use in relation to the word ‘payment’ of the epithets ‘punctual’ and ‘regular’, and, secondly, the presence of the words ‘or any breach of this charterparty’. As regards the epithets ‘punctual’ and ‘regular’ he said that these emphasised the importance of the obligation, and he relied, in support of this proposition, on Maclaine v Gatty [1921] 1 AC 376 and particularly on the observations of Viscount Finlay, at p 389. As regards the words ‘or any breach of this charterparty’ he said that it was necessary to imply the words ‘in the event of’ between the words ‘or’ and ‘any’, and that what was then meant was that, in the event of a breach of any essential term of the charterparty, other than failure to pay hire punctually, the owners should have the right to withdraw the ship. It followed that failure to pay hire punctually was being treated as being in the same category as breach of any other essential term. Against that Mr Goff contended that the use of the epithets ‘punctual’ and ‘regular’ added nothing or little to the word ‘payment’ standing alone; and that reservation of an express right of withdrawal for failure to pay hire tended to show that the obligation was not otherwise of such a character as to be an essential term.

+ + + + +

I have considered these arguments carefully and I have reached the conclusion that there is nothing in clause 5 which shows clearly that the parties intended the obligation to pay hire punctually to be an essential term of the contract, as distinct from being a term for breach of which an express right to withdraw was given. It follows that I decide the first point of construction in favour of the charterers.”

+ + + + + + + 124. + +

He went on at pp. 408D-409F to consider the “so long as” construction point, on which he distinguished The Georgios C by reason of the difference in the wording of the NYPE withdrawal clause before him from that of the Baltime clause under consideration in The Georgios C, rejecting the “so long as” construction and holding that the right to withdraw accrued as soon as there was a default in payment and could not be defeated by a subsequent payment or tender of hire, in the absence of waiver. He then considered and rejected the second of the owners’ three alternative arguments, that of repudiatory breach of an innominate term at pp.409F-410A. The upshot was that the owners were held to be entitled to terminate contractually but not at common law. I agree with Flaux J that Brandon J’s decision on the condition point was part of the ratio, because it was one of a number of reasons for his decision.

+ + + + 125. + +

In the Court of Appeal, owners’ entitlement to withdraw was upheld as a contractual termination under the clause, rejecting charterers’ “so long as” construction and distinguishing The Georgios C on the different wording of the clauses: Edmund Davies LJ at pp. 951F-953H, Megaw LJ at pp. 957C, 957G-958H, Cairns LJ at p.971A-G.

+ + + + 126. + +

Owners’ alternative argument, that there was a common law termination apart from the contractual right of termination, was the subject of a cross appeal. The argument was addressed by Edmund Davies LJ, in these terms at p. 956C-E:

+ + + + “6. + +

Repudiation

+ + + + +

It remains to deal with the owners’ cross-notice. This relates to Brandon J.’s rejection of the plea contained in paragraph 13 of the defence that the charterers’ failure to pay the April hire punctually, following as it did on persistent late payments and notwithstanding the owners’ protests in January and February 1970,. . . “constituted a breach of condition and/or a repudiation and/or fundamental breach of the charterparty . . .” which entitled the owners to rescind by withdrawing the ship. Mr. Anthony Evans evinced no enthusiasm in supporting this plea, and that, I think, was wholly understandable. Brandon J. said [1973] 1 W.L.R. 386, 409:

+ + + +

“In order to justify a decision that the charterers’ conduct was repudiatory it would be necessary to find that they evinced clearly by it an intention not to be bound by the terms of the contract.”

+ + + +

He declined to hold that they had, and, on the whole of the evidence, I agree with him.”

+ + + + + + + + 127. + +

Although he refers to the pleaded case of breach of condition, Edmund Davies LJ only addresses the argument of repudiatory breach of an innominate term, not breach of condition, citing the passage in Brandon J’s judgment where he dealt with the repudiatory breach point discretely. Similarly Megaw LJ addressed the argument solely as one of repudiatory breach of an innominate term at p. 963A-B:

+ + + + +

“The repudiation question

+ + + + +

The owners contend that the history of belated hire payments by the charterers is such that the owners were entitled to treat the charterparty contract as at an end, apart altogether from the “failing punctual payment” clause. Once again, because of the assignment, there might be difficulties for the owners in relying on late payments, the right to receive which they had transferred to another person. In any event, however, with all respect, the argument on behalf of the owners wholly failed to convince me that there was any possible basis for disagreeing with the view held and expressed by Brandon J, who rejected this submission on his review of the relevant facts.”

+ + + + + + + + 128. + +

Flaux J said at paragraph [72] of The Astra that nothing in the judgments in the Court of Appeal suggests that the condition point was argued, and that there is therefore nothing in the Court of Appeal judgments which assists on the current issue. I agree that the judgments contain nothing to indicate that Mr Evans addressed the condition point as a separate argument. Nevertheless the repudiation ground was maintained by Mr Evans, even if with little enthusiasm (the report suggests that it was described by Mr Evans in argument as “academic since no damages have been claimed by the owners”) and all three members of the Court must have had in mind the alternative route to common law termination, that of breach of condition, which was separately addressed by Brandon J in the judgment being appealed and expressly adverted to as part of the owners’ pleaded case by Edmund Davies LJ in the passage quoted above. Even if one were to treat the condition point as conceded by owners in the Court of Appeal, I regard it as significant that no member of the Court expressed any reservation about that aspect of Brandon J’s decision, which if wrong would have rendered the debate on the construction point otiose and meant that the argument on repudiation was conducted and addressed on the false footing that payment of hire was an innominate term. The decision involves at least implicit approval by a strong Court of Appeal of Brandon J’s decision that payment of hire was not a condition.

+ + + + 129. + +

In Steelwood Carriers Inc v Evimeria Compania Vaviera SA (The Agios Giorgis) [1976] 2 Lloyd’s Rep 192 charterers under a time charter on the NYPE form withheld a sum from a monthly instalment of hire in respect of a speed claim. The owners instructed the master not to discharge and two days were lost before the charterers paid the balance and discharge occurred. The umpire determined that the charterers’ deduction for the speed claim was excessive, such that there had been a default in payment of hire. Upon the hearing of a case stated owners argued that clause 5 granted a right to make a temporary withdrawal of the vessel as much as a permanent one. In support of this argument it was contended that the payment of hire was a condition precedent to performance by the owners and that the obligations of the charterers to pay hire in advance and of continued performance were concurrent conditions requiring mutuality. Mocatta J said at p. 201 col 2:

+ + + + +

“Although when Lord Tenterden first wrote his famous text-book on Shipping it was not the practice to provide for hire to be paid in advance and for time charterers to grant an express right of withdrawal on non-payment of such advance payments, these provisions have been common form in time charters in this country and the United States for generations. I think there is much weight in Mr. Pollock’s argument that if the word “withdrawal” bore the construction sought to be placed upon it by Mr. Hallgarten so as to include temporary withdrawal or suspension, this would inevitably have come up for decision in the Courts before now. The Courts seem to have treated the word “withdrawal” as equivalent to “cancellation", an interpretation which, if I may say so with respect, seems to me the natural one.”

+ + + + + + + + 130. + +

Having referred to The Antonios Mavrogordatos and The Petrofina amongst other authority, he went on at p. 202 cols 1-2:

+ + + + +

“Apart from these authorities and the remarkable absence of any authority the other way, I thought there was force and relevance in Mr. Pollock’s submission that payment of hire is not a condition precedent in the contract to immediate further performance by the shipowner. Thus in The Brimnes both Mr. Justice Brandon, [1972] 2 Lloyd’s Rep. 465 and 483, and the Court of Appeal [1974] 2 Lloyd’s Rep. 241 at pp. 252, 256 and 262, held that late payment of hire was not of itself repudiatory entitling the owners, in the absence of a withdrawal provision, to terminate the charter. In this connection his citation of Leslie Shipping Co. v. Welstead, (1921) 7 Ll.L.Rep. 251; [1921] 3 K.B. 420, was interesting. There Mr. Justice Greer (as he then was) said at pp. 253 and 426 that the withdrawal clause was inserted in the charter for the benefit of the shipowners giving them an express right to withdraw the vessel and making it impossible that there should be any discussion about the matter. If timely payment of hire was a condition precedent, there would have been no relevance in this comment. .

+ + + + +

If hire still remains payable should the services of the ship be withdrawn for a period without this amounting to a repudiation which is accepted, then I do not think there is that close concurrent mutuality for which Mr. Hallgarten argued.”

+ + + + + + + + 131. + +

Although I have not found this passage entirely easy, it is clear at least that it treats The Brimnes as correctly deciding that payment of hire is not a condition, and raises the further point that were it a condition there would be no need for a contractual right of termination to be inserted for the benefit of the shipowner because it would not enlarge his common law rights.

+ + + + 132. + +

The decision in The Georgios C was subsequently overruled by the House of Lords in Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia (The Laconia) [1977] AC 850, another case on the NYPE form of charterparty. In that case hire was due on a Sunday, the charterers’ bank tendered payment to the owners’ bank by delivery of a payment order on the Monday afternoon, the payment order was accepted and began to be processed for credit to the owners’ account, but before such credit the owners gave notice of withdrawal. Again the market had risen substantially since the date of the charter and the only issue was the owners’ right to withdraw, not any claim for damages. The arbitrators and Donaldson J held that the owners were entitled to withdraw, the Court of Appeal by a majority that they were not. Lord Denning, in the majority, gave as one ground that the withdrawal clause was a forfeiture clause and that the law will not enforce such a clause after payment or tender, relying on a previous dictum of his to that effect in The Georgios C. The House of Lords allowed the appeal, holding that the right to withdraw accrued the moment the charterers were in default of payment and the right to withdraw remained exercisable for a reasonable time thereafter, in the absence of waiver, despite the late tender or payment of hire by the charterers in the meantime.

+ + + + 133. + +

Lord Wilberforce said at p. 867 that the result turned upon two and only two questions, namely the construction of the withdrawal clause and waiver. It is apparent that so far as relevant to the present issue the reversal of the The Georgios C was confined to the point that the withdrawal clause was operative only for so long as hire remained unpaid. Lord Wilberforce rejected the “so long as” construction as contrary to the unambiguous wording of the withdrawal clause and endorsed the decision of Brandon J and the Court of Appeal in The Brimnes to that effect (pp. 867G-868A). He criticised The Georgios C construction on the wording of the Baltime clause in that case, and insofar as it suggested a “so long as” construction could apply to other standard withdrawal clause wordings (pp. 868C-869E). He went on to criticise Lord Denning’s approach in the decision under appeal, and in the The Georgios C, to the effect that, by reference to an analogy with forfeiture clauses, there was a general bar to reliance on a withdrawal clause if tender or payment was made before withdrawal (pp. 869A-870D). In this last context he said:

+ + + + +

“As has often been pointed out the description of a time charter as a hire or demise of a ship is very misleading: all that the owner does, in fact, is to agree to provide services, those of the master and the crew (whose wages the owner has - punctually - to pay) in sailing the ship for the charterers’ purposes, and all that the withdrawal clause does is to entitle the owner to cease providing these services (for example see Lord Porter in the Tankexpress [1949] A.C. 76, 90). It must be obvious that this is a very different type of creature from a lease of land. I would certainly go so far as to agree that the owner has to show that the conditions necessary to entitle him to withdraw have been strictly complied with: but equally I would not overlook the fact that there are very good reasons why the charterer should punctiliously comply with the provisions as to the payment of hire in which the owner has an interest very different from that of a landlord whose essential interest is to receive the rent.”

+ + + + + + + + 134. + +

The “good reasons” for punctilious payment of hire no doubt included those articulated by Mr Hobhouse QC in argument at p. 854A-C:

+ + + + +

“A time charter is a contract for the provision of services. Much of its language has historical origins and is not appropriate to modern times: see Sea and Land Securities Ltd. v. William Dickinson and Co. Ltd. [1942] 2 K.B. 65, 69. During the provision of the services the shipowner bears the cost of running the vessel from day to day. For this he is to get the hire in advance because the owner puts the profit earning capacity of the ship at the disposal of the charterer. The freights are collected by the charterer; the shipowner never sees these profits. The shipowner is not obliged to perform the services on credit; he does so only against advance payment. He stipulates for and is entitled to advance payment monthly or fortnightly. He is not obliged to provide the services here for a given fortnight until he has had payment in full in respect of it: see Tankexpress A/S v. Compagnie Financière Belge des Petroles S.A. (The Petrofina)[1949] A.C. 76, 81, 89-90, 91, 93, 94, 97, 99-100, 102, 105. The withdrawal clause allows the shipowner to put an end to the contract.”

+ + + + + + + + 135. + +

To these may be added two further reasons why prompt payment of hire in advance may be of importance to owners. First it is commonplace for vessels to be mortgaged on terms which require punctual payment of instalments to the bank, with any default triggering acceleration of repayment of the loan and the bank’s right to realise its security by selling the mortgaged vessel. Where the owners are part of a group owning a fleet of vessels there may be cross default provisions, such that any one failure to meet a repayment instalment to one bank in respect of one vessel may have this effect across part or all of the fleet. Punctual payment of hire is of importance to owners in such circumstances in order to meet their financing obligations. Secondly, the term must bear the same categorisation where it appears in an intermediate charter in a string of time charters, which are sometimes on back to back terms save as to rates, as it bears in the head charter or where there is no string. Where hire is due to a disponent owner under an intermediate charter, the disponent owner may be dependent upon punctual receipt to fulfil his own hire obligations to pay hire under the head charterparty.

+ + + + 136. + +

Lord Simon agreed with Lord Wilberforce. Lord Salmon expressed similar views on The Georgios C being wrong as a matter of construction of the Baltime clause at p. 876A-G, and on analogy with forfeiture cases being inapposite at p. 878A-F. He emphasised the need for commercial certainty at p. 878E-G. Lord Fraser treated The Georgios C as being wrongly decided as a matter of construction at pp. 882H-883D, as did Lord Russell at pp. 887A-888C. Lord Fraser also emphasised the need for certainty at pp. 882H-883E.

+ + + + 137. + +

There is to my mind nothing in these criticisms of The Georgios C, or in the criticism of Lord Denning’s reliance on a forfeiture analogy, which undermines Brandon J’s reliance on The Georgios C in The Brimnes for the point currently under debate, namely that payment of hire is not a condition any breach of which gives rise to a common law right of termination but merely triggers a contractual right of termination. Brandon J did not follow The Georgios C on the “so long as” construction point, which was the aspect of the latter case which the House of Lords held to be erroneous, but rather distinguished it. The proposition for which Brandon J treated The Georgios C as authoritative was that articulated by Donaldson J and by Lord Denning, namely that there was no common law right to terminate for repudiation on the grounds that time was of the essence, so that, absent conduct which would be a repudiatory breach of an innominate term, the right of withdrawal depended upon the construction of the clause. There is no hint of any criticism in the speeches of the House of Lords in The Laconia of this aspect of the reasoning in The Georgios C. They contain no analysis of the categorisation of the term as a condition or innominate term, or of whether time was of the essence.

+ + + + 138. + +

China Trade Corporation v Evoglia (The Mihalios Xilas) [1979] 1 WLR 1018 was a withdrawal case which turned on its particular facts, in which the House of Lords again criticised Lord Denning’s continued determination to relieve charterers from the strict effect of withdrawal clauses by invoking the analogy of forfeiture clauses. The hire clause was in bespoke terms providing for withdrawal “in default of payment”. The payment of hire for the final instalment was deficient because, as the umpire held, the charterers’ deductions for the length of the final voyage and bunkers on board at redelivery were unreasonable. Before Kerr J and in the appeals there was no dispute that there was a default in payment of hire and the argument was addressed to whether owners had waived the right to withdraw in reliance on the withdrawal clause. In the Court of Appeal Lord Denning and Eveleigh LJ held, for different reasons, that they had waived the right, with Geoffrey Lane LJ dissenting. The House of Lords allowed the appeal. At pp. 1024H-1025A Lord Diplock criticised Lord Denning’s approach to the whole case as coloured by a view that withdrawal clauses contained the “distasteful characteristics” of a forfeiture clause which would justify the court finding one or other of a variety of excuses for refusing to give effect to it. Lord Salmon said at p. 1032B-G:

+ + + + +

“My Lords, it would seem that there are some members of the Court of Appeal who do not approve of the Baltime form of charter and other forms of charter such as the New York Produce Exchange and the Shelltime forms which closely resemble it. These forms of charter are undoubtedly very strict in relation to the due payment of hire: their meaning, however, is perfectly clear and it is not permissible to put a construction upon them which would depart from that meaning. Unless the full amount of hire is paid by its due date the owners have the undoubted right to withdraw their vessel providing they do so within a reasonable time of the charterers’ default. The only exception is when the parties by their course of conduct (a) have as in the present case accepted that disbursements made by the charterers in respect of the owners’ liabilities may be deducted from the hire subject to vouchers being produced, or e.g., (b) have accepted as in Tankexpress A/S v. Compagnie Financière Belge des Petroles S.A. [1949] A.C. 76 that the amount of hire posted two days before it falls due shall be deemed to have been paid in time. Otherwise, unless the full hire is paid by the time it falls due the charterers are in default and the vessel may be withdrawn. On the appeal to your Lordships’ House in The Laconia [1977] A.C. 850 I ventured to point out that the law relating to the owners’ rights under a Baltime form of charter to withdraw their vessel should the charterers fail to pay the hire in time had been clearly stated by your Lordships’ House in the Tankexpress case; but that a great deal of doubt on the subject had since been generated by the Court of Appeal in The Georgios C [1971] 1 Q.B. 488 and had troubled the waters ever since. I expressed the hope that those doubts might finally be dispelled by your Lordships’ reversal of the Court of Appeal’s decision in The Laconia and overruling its decision in The Georgios C. These doubts were, however, temporarily revivified by the decision of the Court of Appeal in the present case but will now, I think, permanently be laid to rest by your Lordships’ decision allowing this appeal; Certainty of meaning is of primary importance in all commercial transactions. Commercial contracts all over the world, having nothing to do with the United Kingdom, have for generations provided that any dispute arising under the contract shall be decided in the English commercial court or by arbitration in London according to English law. This is because of the confidence which exists throughout the commercial world in the administration of English justice. I fear that this confidence will hardly be strengthened should there be any further decisions in the Court of Appeal similar to those in The Georgios C, The Laconia and the instant case.”

+ + + + + + + + 139. + +

I shall return to the subject of commercial certainty in due course, but the criticism of Lord Denning’s approach in this case casts no doubt upon what he said about common law repudiation in The Georgios C or upon Brandon J’s reliance upon it in The Brimnes.

+ + + + 140. + +

In an earlier passage at page 1031G-H Lord Salmon said:

+ + + + +

“The Baltime form of charter and others which closely resemble it may be hard on charterers, especially when the market for hiring vessels rises sharply during the span of the charter. Certainly there are other forms of charter which are not so strict. It must, however, be remembered that charterers and shipowners are usually hard-headed and experienced businessmen who freely agree upon which form of charter they will adopt.”

+ + + + + + + + 141. + +

I make two observations about this passage. First, it emphasises that the terms of a right of withdrawal are a matter for contractual bargain between the parties, and presupposes that payment of hire would not be treated as a condition absent such a contractually negotiated right of termination. Secondly, Lord Salmon there seems to contemplate that the principal risk to charterers from a stringent clause is losing a profitable charter in a risen market, not an exposure to damages in a fallen market, an approach which assumes that the clause is an option to cancel, rather than conferring on the payment term the status of condition so as to give rise to a common law right of termination and damages. If payment of hire were a condition entitling owners to terminate at common law and claim damages, charterers’ exposure would be just as great if the market had fallen as if it had risen. On a risen market the charterers would bear the market difference by having to charter in at a higher rate; in a fallen market charterers would have to pay owners for the fall in the rate as damages for repudiation.

+ + + + 142. + +

In A/S Awilco v Fulvia S.p.a. di Navigazione (The Chikuma) [1981] 1 WLR 314 the charter was on the NYPE form providing for payment of hire in cash. Hire was due on 22 January, at which time the charterers’ bank had made a telex transfer of the instalment to owners’ bank for value on 26 January. This was held by the House of Lords not to constitute timeous payment under the clause because owners’ access to the funds on 22 January was not unconditional, with the result that owners’ withdrawal of the vessel on 24 January was valid. Lord Bridge, giving the leading speech, observed that exercises of judicial ingenuity to mitigate the rigours of shipowners’ rights to withdraw vessels for non payment of hire had not had a happy history. He cited the passage from Lord Wright in The Petrofina which I have quoted above, referring to the importance of advance hire to owners in justifying “the stringency of the right to cancel”, and of Lord Salmon in The Laconia stressing the importance of certainty in commercial transactions (p. 321B-H).

+ + + + 143. + +

Afovos Shipping Co SA v R. Pagnan & F.lli (The Afovos) [1983] 1 Lloyds’s Rep 335 involved a time charter on the NYPE form with an anti-technicality clause providing that if hire was not paid, the owners were to give the charterers 48 hours’ notice and could not withdraw the vessel if the hire was paid within such period. The last day for payment of hire was 14 June. On 11 June the charterers instructed their bank to remit the hire due on 14 June to the owners’ bank in London as required by clause 5. The charterers’ bank purported to comply by sending a telex transfer to the owners’ London bank on 13 June, but in error, the telex was sent to a sand and silica merchant in Reigate. The owners served a 48 hour notice at 16.40 on 14 June, to which the charterers replied that the hire had been sent by telex transfer. When payment had still not been received on 18 June, the owners withdrew the vessel. The error in relation to the telex was only discovered on 19 June. The dispute concerned whether the 48 hour notice had been given prematurely. Both the Court of Appeal and the House of Lords held that it had, since at 16.40 on 14 June, the charterers were not yet in breach of clause 5. Of relevance to the present debate is owners’ argument that the charterers were in anticipatory breach of contract when the notice was served having disabled themselves from paying the hire that day by 16.40, because that was after banking hours. Lord Diplock (with whom Lords Hailsham, Keith, Brightman and Roskill agreed) said at p. 341:

+ + + + +

“Nevertheless the doctrine of anticipatory breach by conduct which disables a party to a contract from performing one of his primary obligations under the contract has in my view no application to a breach of such a clause.

+ + + + +

The relevant portions of cl. 5 have been set out by the Lord Chancellor. The first part of the clause imposes upon the respondents as charterers a primary obligation to pay the “said hire” (which by cl. 4 had been fixed at a monthly rate and pro-rata for any part of a month) punctually and regularly in advance by semi-monthly instalments in the manner specified, which would involve the payment of a minimum of 42 and a maximum of 54 instalments, during the period of the charter. Failure to comply with this primary obligation by delay in payment of one instalment is incapable in law of amounting to a “fundamental breach” of contract by the charterers in the sense to which I suggested in Photo Production Ltd. v. Securicor Transport Ltd., [1980] 1 Lloyd’s Rep. 545; [1980] A.C. 827 at pp. 553 and 849, this expression, if used as a term of legal art, ought to be confined. The reason is that such delay in payment of one half-monthly instalment would not have the effect of depriving the owners of substantially the whole benefit which it was the intention of the parties that the owners should obtain from the unexpired period of the time charter extending over a period of between 21 and 27 months.

+ + + + +

The second part of cl. 5, however, starting with the word “otherwise” goes on to provide expressly what the rights of the owners are to be in the event of any such breach by the charterers of their primary obligation to make punctual payment of an instalment. The owners are to be at liberty to withdraw the vessel from the service of the charterers; in other words they are entitled to treat the breach when it occurs as a breach of condition and so giving them the right to elect to treat it as putting an end to all their own primary obligations under the charter-party then remaining unperformed. But although failure by the charterers in punctual payment of any instalment, however brief the delay involved may be, is made a breach of condition it is not also thereby converted into a fundamental breach; and it is to fundamental breaches alone that the doctrine of anticipatory breach is applicable.”

+ + + + + + + + 144. + +

In this passage Lord Diplock uses the expression “fundamental breach” as connoting a repudiatory breach of an innominate term in contradistinction to the species of repudiatory breach comprising breach of condition. He had recently expressed the view in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849D-F that the expression “fundamental breach” should be confined to such use and not extend to breach of condition. His statement that it is to fundamental breaches alone, in this sense, that the doctrine of anticipatory breach is applicable, is problematic: see the discussion in Treitel The Law of Contract 13th edn at 17-083. I find it difficult to reconcile with the principled explanation of the rationale underlying the doctrine of anticipatory breach in Universal Carriers v Citati, namely that the innocent party is entitled to assume that there will inevitably happen that which the other party has made clear he intends to happen, and so does not have to wait until the inevitable occurs: see pp. 436-438. This applies as much to anticipatory breaches of condition as to anticipatory repudiatory breaches of innominate terms.

+ + + + 145. + +

The decision can be explained on the basis suggested in Treitel, and in Chitty on Contracts at paragraph 24-032, that the doctrine of anticipatory breach cannot be applied to a contractual right of termination and that the latter cannot be exercised until its terms are fulfilled. This raises the question whether, as the editors of Wilford on Time Charters had suggested as a possible interpretation prior to the decision in The Astra, this passage merely treats the clause as one which gives rise to a contractual right of termination because it confers a right to terminate in the same circumstances as a right to terminate would arise if payment were a condition. In The Astra at paragraph [91] Flaux J described the latter argument as an impermissible gloss. I agree. Whilst I would have been attracted to such an interpretation solely on a reading of the language used taken in isolation, the passage must be read in the light of Lord Diplock’s clearly stated view in an obiter dictum five years earlier in United Scientific Holdings v Burnley Borough Council [1978] AC 904 at 924 that “in a charterparty a stipulated time of payment is of the essence” and his careful use of language distinguishing a fundamental breach from a breach of condition in Photo Production and The Afovos itself, and again later in The Antaios (see below). Lord Diplock’s analysis is that the effect of the withdrawal provision is to make the payment term a condition although in the absence of the withdrawal provision it would be an innominate term.

+ + + + 146. + +

In Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694, the House of Lords rejected the argument that charterers could invoke the equitable doctrine of relief from forfeiture so as to avoid the effect of owners’ right to withdraw for non payment of hire under the Shelltime 3 form. The question whether the term was a condition was not directly in issue, but was relevant to a number of ways in which the argument was framed in relation to relief from forfeiture: see pp. 696C, 696F-G and 697G-H. It appears to have been conceded by Mr Steyn QC on behalf of the charterers, as he then was, that payment of hire was a condition.

+ + + + 147. + +

Lord Diplock, with whom Lords Keith, Scarman, Roskill and Bridge agreed, endorsed the statement of Lord Wilberforce in The Laconia that a time charter was a very different type of creature from a lease of land. He said at p. 702D-E

+ + + + +

“Moreover, in the case of a time charter it is not possible to state that the object of the insertion of a withdrawal clause, let alone the transaction itself, is essentially to secure the payment of money. Hire is payable in advance in order to provide a fund from which the shipowner can meet those expenses of rendering the promised services to the charterer that he has undertaken to bear himself under the charterparty; in particular the wages and victualling of master and crew, the insurance of the vessel and her maintenance in such a state as will enable her to continue to comply with the warranty of performance.”

+ + + + + + + +

He went on at p. 703A

+ + + + +

“All the analogies that ingenuity has suggested may be discovered between a withdrawal clause in a time charter and other classes of contractual provisions in which courts have relieved parties from the rigour of contractual terms into which they have entered can in my view be shown upon juristic analysis to be false. Prima facie parties to a commercial contract bargaining on equal terms can make “time to be of the essence” of the performance of any primary obligation under the contract that they please, whether the obligation be to pay a sum of money or to do something else. When time is made of the essence of a primary obligation, failure to perform it punctually is a breach of a condition of the contract which entitles the party not in breach to elect to treat the breach as putting an end to all primary obligations under the contract that have not already been performed. In Tankexpress A/S v. Compagnie Financière Belge des Petroles S.A. [1949] A.C. 76 this House held that time was of the essence of the very clause with which your Lordships are now concerned where it appeared in what was the then current predecessor of the Shelltime 3 charter. As is well-known, there are available on the market a number of so-(mis)called “anti-technicality clauses,” such as that considered in The Afovos, which require the shipowner to give a specified period of notice to the charterer in order to make time of the essence of payment of advance hire; but at the expiry of such notice, provided it is validly given, time does become of the essence of the payment.”

+ + + + + + + + + 148. + +

This is a further clear statement of Lord Diplock’s view that the effect of the withdrawal clause was to make the payment of hire a condition. It is also a statement that such was what was decided by The Petrofina, although as I have sought to explain, I do not regard the latter decision as going so far.

+ + + + 149. + +

In Antaios Compania SA v Salen AB (The Antaios) [1985] 1 AC 191 the owners withdrew the vessel, not for non payment of hire, but relying on the wording of the other half of the NYPE form withdrawal clause “or on any breach of this charterparty”. The breach relied upon was the issue of inaccurate bills of lading. The arbitrators rejected owners’ entitlement to withdraw on the grounds that “any” breach meant any repudiatory breach, a conclusion which was unanimously upheld by the House of Lords. In the leading speech Lord Diplock, (with whom amongst others Lord Brandon agreed) said at pp. 200E-201B.

+ + + + +

“The arbitrators decided this issue against the shipowners. The 78 pages in which they expressed their reasons for doing so contained an interesting, learned and detailed dissertation on the law, so lengthy as to be, in my view, inappropriate for inclusion in the reasons given by arbitrators for an award. Their reasons can be adequately summarised as being (1) that “any other breach of this charter party” in the withdrawal clause means a repudiatory breach - that is to say: a fundamental breach of an innominate term or breach of a term expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongfully repudiated by the charterers, a category into which in the arbitrators’ opinion the breaches complained of did not fall, and (2) that even if that were wrong, the word “on” immediately preceding “any other breach” meant “within a reasonable time of” their first knowledge of the breach; and the shipowners, in the arbitrators’ opinion, had not given notice of withdrawal until after such reasonable time had expired.

+ + + + +

To the semantic analysis, buttressed by generous citation of judicial authority, which led the arbitrators to the conclusions as to the interpretation of the wording of the withdrawal clause that I have summarised, the arbitrators’ added an uncomplicated reason based simply upon business commonsense:

+ + + +

“We always return to the point that the owners’ construction is wholly unreasonable, totally uncommercial and in total contradiction to the whole purpose of the N.Y.P.E. time charter form. The owners relied on what they said was 'the literal meaning of the words in the clause'. We would say that if necessary, in a situation such as this, a purposive construction should be given to the clause so as not to defeat the commercial purpose of the contract.””

+ + + + + + + + + 150. + +

The case does not bear directly on whether payment of hire is a condition, but I mention it for three reasons. First it is further evidence of Lord Diplock’s terminology using the expression “fundamental breach” as the species of repudiatory breach which is a breach of an innominate term, in contradistinction to breach of a condition. Secondly, the wording of the NYPE 1993 form clause has been revised to replace “any breach” with “any fundamental breach”. This might be taken to be a conscious adoption of the effect and language of The Antaios, including Lord Diplock’s terminology; if so it would suggest that the second half of the clause in the new form is narrower than the interpretation put upon the 1946 form as applying to any repudiatory breach whether a fundamental breach or a breach of condition, a point to which I will return when considering arguments on the language of clause 11. Thirdly, Rix LJ later referred to The Antaios as supportive of there being a good argument that payment of hire was a condition. I do not myself see that it provides any support for that proposition.

+ + + + 151. + +

In ENE 1 Kos Ltd v Petroleo Brasiliero SA (The Kos) [2012] 2 AC 164 the charter was on the Shelltime 3 form, with no anti-technicality clause. Owners gave notice of withdrawal for non payment of hire, which was disputed, following which the charterers had continued use of the vessel for some 2½ days in discharging. Owners claimed some US$400,000 for charterers’ use and detention of the vessel on alternative bases, the first being as damages for non payment of hire and the second for an indemnity under clause 13 for the master’s failure to comply with the charterers’ orders. The latter basis succeeded in the Supreme Court. Counsel for the owners, Mr Eder QC as he then was, made clear that in arguing the case for damages for non payment of hire he was not arguing that it was a breach of condition. At first instance ([2010] 1 Lloyd’s Rep 87) Andrew Smith J said at paragraphs [37]-[38]:

+ + + + “37. + +

In presenting this part of the owners’ argument, Mr Eder emphasised that the owners do not contend that it was a repudiation of the charterparty not to pay hire, at least in the case of a failure to pay for as short a period as in this case. The point is not straightforward: as Rix LJ said in Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436 at para 80, there must be a good argument that ‘the express right to withdraw in the case of unpunctual payment under such a clause is a breach of a condition of the contract, breach of which is in itself repudiatory’. However, the general view is, I think, that a failure to pay hire when it is due is a breach of an intermediate term, and not necessarily repudiatory and does not in itself entitle the owner to claim damages for loss resulting from the termination of the charterparty: see Time Charters, 2008, 6th Edition, at paras 16.128 and 16.132. Even if the owners had argued otherwise and I had been persuaded to award damages for such loss, the damages resulting from the termination of the charterparty would not be based upon the market rate of hire but the contractual rate, and no such claim has been advanced.

+ + + + 38. + +

In these circumstances, I cannot accept that the owners’ claim is recoverable as damages for the failure to pay hire. I agree with the charterers’ submission that, once the breach is not said to be repudiatory, it is an answer to the claim that the loss was not effectively caused by their failure to pay hire on time because the owners’ decision to withdraw the vessel breaks the chain of causation. This is, I think, why Lord Denning MR said in Tropwind AG of Zug v Jade Enterprises Ltd (The Tropwood) (No 2) [1982] I Lloyd’s Rep 232 at page 237 (in a passage to which I refer further below): ‘The damages for such a breach would be trifling’.”

+ + + + + + + + 152. + +

In the Supreme Court, again it appears that new counsel for the owners did not contend that the failure to pay hire was repudiatory. Nevertheless both Lord Sumption and Lord Mance, whose experience in this area of the law is considerable, expressed the view that payment of hire was not a condition. Lord Phillips and Lord Walker agreed with Lord Sumption (as did Lord Clarke although expressed on more limited grounds). Lord Sumption said at paragraphs [6]-[7]

+ + + + 6. + +

Under all the remaining heads of claim, the charterers argument is substantially the same, namely that any delay or loss arising from the need to discharge the cargo results from the owners’ decision to withdraw. That was a decision made at their own election and for their own commercial purposes. The owners, it is said, must bear the adverse as well as the beneficial consequences of an optional decision made in their own interest. It is clear that this consideration influenced both courts below, and that it was decisive in the minds of the Court of Appeal.

+ + + + 7. + +

The factual premise of the argument is of course correct. It is axiomatic that a withdrawal clause operates at the election of owners, and not automatically. Two main consequences follow from this. The first is that owners will not exercise their right of withdrawal unless it is in their commercial interest to do so. Usually, this will be because market rates of hire have risen. But it may be in owners’ interest to withdraw the vessel even if they have not risen, for example, where the charterers are insolvent or owners depend on prompt payment to fund payments under a head charter or charterers’ payment record occasions administrative or other difficulties. The second consequence is that any failure on the part of the charterers to pay hire when it falls due will not of itself entitle the owners to damages representing the loss of the bargain or the expenses of termination simply because the owners respond by withdrawing the vessel. This is because the non-payment does not itself destroy the bargain or occasion the expenses, unless in the circumstances it is a repudiation which owners have accepted as such. But the present claim is not a claim for damages, and the non-payment of the June 2008 hire payment in this case was not a repudiation. This, however, is as much as can usefully be said. The fact that rather than perform the contract the owners found it more advantageous to exercise an express right of termination is morally and legally neutral. There are no standards by which the owners’ reasons may be judged, other than those to be found in the contract. There is no legal policy specific to termination rights restricting their availability or the consequences of their exercise more narrowly than does the language of the contract or the general law. More generally, the reasons for any particular withdrawal cannot affect the principle to be applied in resolving an issue like the present one.”

+ + + + + + + + 153. + +

Lord Mance said in a speech which concurred with the majority as to the result but dissented on the application of the indemnity clause:

+ + + + “52. + +

The general contractual context in my view also supports a conclusion that the express indemnity clause is inapt to apply to the present situation. Clause 8 of the charterparty gives owners a simple contractual option. It is accepted that the mere late payment of one instalment did not constitute a repudiatory breach (or a breach of a condition in a sense like that used in the Sale of Goods Act 1979) which could entitle the owners to damages for loss of the charter. That loss flowed from the owners’ exercise of their option to withdraw. The phrase in clause 8 “without prejudice to any claim owners may otherwise have on charterers under this charter” does not create a right of action, and looks on its face only to pre-existing claims. So there is no way in which the time spent discharging in Angra dos Reis can be claimed as damages.”

+ + + + + + + +

The authorities on categorisation of terms as conditions and time being of the essence

+ + + + + 154. + +

The starting point is the seminal judgment of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kishen Kaisha Ltd [1962] 2 QB 26. His analysis begins by equating events which are sufficiently serious to bring a contract to an end for breach with those which are sufficiently serious for frustration, and treats the various metaphors used to define such seriousness as encapsulated in a test of whether the event deprives the party of substantially the whole benefit of the contract (p.66). After a survey of the historical development of the law on conditions and warranties he states at pp. 69-70:

+ + + + +

“No doubt there are many simple contractual undertakings, sometimes express but more often because of their very simplicity (“It goes without saying”) to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a “condition.” So too there may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and such a stipulation, unless the parties have agreed that breach of it shall entitle the non- defaulting party to treat the contract as repudiated, is a “warranty.”

+ + + + +

There are, however, many contractual undertakings of a more complex character which cannot be categorised as being “conditions" or "warranties,” if the late nineteenth-century meaning adopted in the Sale of Goods Act, 1893, and used by Bowen L.J. in Bentsen v. Taylor, Sons & Co. be given to those terms. Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that be should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a “condition” or a “warranty.”

+ + + + + + + + 155. + +

This passage identifies that a term is to be categorised as a condition only if any predicated breach would deprive the innocent party of substantially the whole benefit of the contract, in the absence of agreement between the parties that a breach shall entitle the innocent party to treat the contract as repudiated. This qualification is not to be elevated into a principle that a contractual right of termination on any breach of the term is indicative that it is a condition. To have such effect it must be an agreement that the breach shall “entitle the defaulting party to treat the contract as repudiated”, in the words of Diplock LJ. A contractual right to terminate may or may not be such an agreement, depending upon its proper construction; it may be no more than an option to cancel, as Diplock LJ himself made clear in Financings v Baldock a year later. I would therefore reject the submission of counsel for the owners in The Astra, recorded at paragraph [39], that the logical corollary of Diplock LJ’s analysis of what constitutes a condition is that if the contract provides for a right to terminate, that is a very strong indication that the term in question is a condition. This seems to me to turn the passage on its head. The essential test proposed is whether the term is one any predicated breach of which deprives the innocent party of substantially the whole benefit of the contract. This may be modified by the agreement of the parties that a breach will entitle the innocent party to treat the contract as repudiated. A contractual termination clause may be one which provides that the agreement is to be treated as repudiated at common law, or may be one which treats the contract as cancelled in futuro as a matter of contractual option. Which of two consequences is intended is a question which falls to be considered as a matter of interpretation of the termination provision and the other terms of the contract. The mere existence of a termination provision tells one nothing about the status of the term without discovering the intention of the parties as to the consequences of the contractual right of termination by this process of interpretation.

+ + + + 156. + +

In Bunge v Tradax [1981] 1 WLR 711, buyers purchased a quantity of soya bean meal on fob terms to be shipped in three instalments in each of the months May, June and July 1975. Buyers were required to give 15 days notice of readiness of a vessel to lift the shipments at a loading port thereafter to be nominated by the sellers. The first monthly shipment was extended to June, the last day for shipment by sellers being 30 June, and consequently the last date for notice of readiness of a vessel to be given by buyers, allowing for loading time, was 12 June. Notice was not given by buyers until 17 June, 5 days late. Sellers treated the buyers as in default and claimed damages for repudiation on the ground that the notice of readiness term was a condition, a contention which succeeded in the Court of Appeal and House of Lords. In the Court of Appeal ([1980] 1 Lloyd’s Rep 294) Megaw LJ gave the leading judgment, which was subsequently expressly endorsed by the House of Lords in the speeches of Lord Wilberforce and Lord Roskill. He took as his starting point (p.303 col 1) that it was an accepted principle of English law that in a contract for the sale of goods the seller’s stipulated time of delivery is prima facie of the essence, citing in support Lord Diplock’s speech in the United Scientific Holdings case, and reasoned that since the purpose of the buyers’ notice of readiness was to give the sellers what the parties agreed was a reasonable time in order for them to make arrangements to perform this delivery condition, the giving of timeous notice of readiness by the buyers must be just as much a condition as was the shipment obligation of the sellers (p. 303 col 2). At p. 305 Col 2 Megaw LJ expressed disagreement with Diplock LJ's formulation of the test in Hongkong Fir insofar as it suggested that a term could only be a condition if it deprived the other party of substantially the whole benefit of the contract, drawing attention to Bowes v. Shand (1877) 2 App. Cas. 455 and other cases in which it had been held that time was of the essence in commercial contracts such that breach gave rise to a right to repudiate irrespective of the gravity of the consequences of the breach.

+ + + + 157. + +

In the House of Lords, Lord Wilberforce recited the buyers’ argument based on Diplock LJ’s analysis in Hongkong Fir that because breach of the notice of readinesss clause might have consequences which ranged from the trivial to the serious it was to be categorised as an innominate term. Lord Wilberforce said at p. 715D:

+ + + + +

“Diplock L.J. then generalised this particular consequence into the analysis which has since become classical. The fundamental fallacy of the appellants’ argument lies in attempting to apply this analysis to a time clause such as the present in a mercantile contract which is totally different in character. As to such a clause there is only one kind of breach possible, namely, to be late, and the questions which have to be asked are, first, what importance have the parties expressly ascribed to this consequence and secondly, in the absence of expressed agreement, what consequence ought to be attached to it having regard to the contract as a whole.

+ + + + +

The test suggested by the appellants was a different one. One must consider, they said, the breach actually committed and then decide whether that default would deprive the party not in default of substantially the whole benefit of the contract. They invoked even certain passages in the judgment of Diplock L.J. in the Hongkong Fir case [1962] 2 Q.B. 26 to support it. One may observe in the first place that the introduction of a test of this kind would be commercially most undesirable. It would expose the parties, after a breach of one, two, three, seven and other numbers of days to an argument whether this delay would have left time for the seller to provide the goods. It would make it, at the time, at least difficult, and sometimes impossible, for the supplier to know whether he could do so. It would fatally remove from a vital provision in the contract that certainty which is the most indispensable quality of mercantile contracts and lead to a large increase in arbitrations. It would confine the seller—perhaps after arbitration and reference through the courts—to a remedy in damages which might be extremely difficult to quantify. These are all serious objections in practice. But I am clear that the submission is unacceptable in law. The judgment of Diplock L.J. does not give any support and ought not to give any encouragement to any such proposition; for beyond doubt it recognises that it is open to the parties to agree that, as regards a particular obligation, any breach shall entitle the party not in default to treat the contract as repudiated. Indeed, if he were not doing so he would, in a passage which does not profess to be more than clarificatory, be discrediting a long and uniform series of cases—at least from Bowes v. Shand (1877) 2 App. Cas. 455 onwards which have been referred to by my noble and learned friend, Lord Roskill. It remains true, as Lord Roskill has pointed out in Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. (The Hansa Nord) [1976] Q.B. 44, that the courts should not be too ready to interpret contractual clauses as conditions. And I have myself commended, and continue to commend, the greater flexibility in the law of contracts to which Hongkong Fir points the way (Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (trading as H. E. Hansen-Tangen) [1976] 1 W.L.R. 989, 998). But I do not doubt that, in suitable cases, the courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that an obligation has the force of a condition, and that indeed they should usually do so in the case of time clauses in mercantile contracts. To such cases the “gravity of the breach” approach of the Hongkong Fir case [1962] 2 Q.B. 26 would be unsuitable. I need only add on this point that the word “expressly” used by Diplock L.J. at p. 70 of his judgment in Hongkong Fir should not be read as requiring the actual use of the word “condition”: any term or terms of the contract, which, fairly read, have the effect indicated, are sufficient. Lord Diplock himself has given recognition to this in this House: Photo Production Ltd. v. Securicor Transport Ltd [1980] AC. 827, 849. I therefore reject that part of the appellants’ argument which was based upon it, and I must disagree with the judgment of the learned trial judge in so far as he accepted it. I respectfully endorse, on the other hand, the full and learned treatment of this issue in the judgment of Megaw L.J. in the Court of Appeal.

+ + + + +

I would add that the argument above applies equally to the use which the appellants endeavoured to make of certain observations in United Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C, 904, a case on which I do not need to comment on this occasion.

+ + + + +

In conclusion, the statement of the law in Halsbury’s Laws of England, 4th ed., vol. 9 (1974), paras. 481—482, including the footnotes to paragraph 482 (generally approved in the House in the United Scientific Holdings case), appears to me to be correct, in particular in asserting (1) that the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties, and (2) that broadly speaking time will be considered of the essence in “mercantile” contracts—with footnote reference to authorities which I have mentioned.

+ + + + +

The relevant clause falls squarely within these principles, and such authority as there is supports its status as a condition: see Bremer Handelsgesellschaft m.b.H. v. J. H. Rayner & Co. Ltd. [1978] 2 Lloyd’s Rep. 73 and see Turnbull (Peter) & Co. Pty. Ltd. v. Mundas Trading Co. (Australasia) Pty. Ltd [1954] 2 Lloyd’s Rep. 198. In this present context it is clearly essential that both buyer and seller (who may change roles in the next series of contracts, or even in the same chain of contracts) should know precisely what their obligations are, most especially because the ability of the seller to fulfil his obligation may well be totally dependent on punctual performance by the buyer.”

+ + + + + + + + 158. + +

Lord Roskill endorsed the view of Megaw LJ that Diplock LJ’s categorisation in Hongkong Fir was not intended to change longstanding authority that where time was of the essence in a mercantile contract any breach would give rise to a right to terminate even if not depriving the innocent party of the whole benefit of the contract. In doing so he emphasised the importance of certainty in this passage at p. 725C-D:

+ + + + +

“Parties to commercial transactions should be entitled to know their rights at once and should not, when possible, be required to wait upon events before those rights can be determined. Of course, in many cases of alleged frustration or of alleged repudiatory delay it may be necessary to await events upon the happening or non-happening of which rights may well crystallise. But your Lordships’ House has recently reiterated in a series of cases arising from the withdrawal of ships on time charter for non-payment of hire the need for certainty where punctual payment of hire is required and has held that the right to rescind automatically follows a breach of any such condition.”

+ + + + + + + + 159. + +

In context, this is a clear statement that payment of hire is a condition, although of course the point was not in issue in the case. Lord Roskill does not identify the recent series of House of Lords cases which he regarded as to that effect. They are likely to include The Laconia, and The Chikuma and perhaps albeit less recent The Petrofina. In each of those cases considerations of commercial certainty were addressed to whether the withdrawal clause should be given full and stringent effect in accordance with its terms, rather than for the purposes of any analysis of whether the term was a condition for the purposes of repudiation at common law.

+ + + + 160. + +

Lord Roskill drew attention to the decision of the House of Lords in Bremer Handelsgesellschaft m.b.h v Vanden Avenne-Izigem P.V.B.A [1978] 2 Lloyd’s Rep 109 in which clause 22 of the contract had been held to be a condition but clause 21 not to be. He went on at p. 727E:

+ + + + +

“In short, while recognising the modern approach and not being over-ready to construe terms as conditions unless the contract clearly requires the court so to do, none the less the basic principles of construction for determining whether or not a particular term is a condition remain as before, always bearing in mind on the one hand the need for certainty and on the other the desirability of not, when legitimate, allowing rescission where the breach complained of is highly technical and where damages would clearly be an adequate remedy. It is therefore in my opinion wrong to use the language employed by Diplock L.J. in the Hongkong Fir case [1962] 2 Q.B. 26 as directed to the determination of the question which terms of a particular contract are conditions and which are only innominate terms. I respectfully agree with what Megaw L.J. said in the passage in his judgment in the instant case.”

+ + + + + + + + 161. + +

It is to be noted that the balance between the need for certainty and the undesirability of treating trivial breaches as carrying the consequences of breaches of condition requires a more nuanced approach where there is a contractual termination clause. In such circumstances the desideratum of certainty may be fulfilled by the contractual right to put an end to the future performance obligations without the full common law consequences of repudiation attaching. This was not a matter which fell to be considered on the facts of that case.

+ + + + 162. + +

At pp. 728H-729D Lord Roskill said

+ + + + +

“In reply to this part of Mr. Buckley’s argument Mr. Staughton drew your Lordships’ attention to Halsbury’s Laws of England 4th ed., vol. 9 (1974), paras. 481 and 482. He was able to show that the penultimate full paragraph in paragraph 481 had been expressly approved by no less than three of your Lordships in the United Scientific Holdings case [1978] A.C. 904, by Viscount Dilhorne at p. 937, Lord Simon of Glaisdale at pp. 941 and 944, and by Lord Fraser of Tullybelton at p. 958, while Lord Salmon at p. 950 stated the law in virtually identical terms though without an express reference to this particular passage in Halsbury. The passage in question reads:

+ + + +

“The modern law, in the case of contracts of all types, may be summarised as follows. Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; or (3) a party who has been subjected to unreasonable delay gives notice to the party in default making time of the essence.”

+ + + + + +

The relevant passage in para. 482 reads:

+ + + +

“Apart from express agreement or notice making time of the essence, the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties. Broadly speaking, time will be considered of the essence in ‘mercantile’ contracts and in other cases where the nature of the contract or of the subject matter or the circumstances of the case require precise compliance.”

+ + + +

A footnote, no. 3, refers among other cases to Reuter v. Sala, 4 C.P.D. 239 and to Bowes v. Shand 2 App. Cas. 455. My Lords, I agree with Mr. Staughton that the express approval of the passage in paragraph 481 cannot be taken as involving implied disapproval of the passage I have just quoted from paragraph 482.”

+ + + + + + + + 163. + +

At p729E-H Lord Roskill said:

+ + + + +

“My Lords, I venture to doubt whether much help is necessarily to be derived in determining whether a particular term is to be construed as a condition or as an innominate term by attaching a particular label to the contract. Plainly there are terms in a mercantile contract, as your Lordships’ House pointed out in Bremer Handelsgesellschaft m.b.H. v. Vanden Avenne-Izegem P.V.B.A. [1978] 2 Lloyd’s Rep. 109, which are not to be considered as conditions. But the need for certainty in mercantile contracts is often of great importance and sometimes may well be a determining factor in deciding the true construction of a particular term in such a contract.

+ + + + +

To my mind the most important single factor in favour of Mr. Staughton’s submission is that until the requirement of the 15-day consecutive notice was fulfilled, the respondents could not nominate the “one Gulf port” as the loading port, which under the instant contract it was their sole right to do. I agree with Mr. Staughton that in a mercantile contract when a term has to be performed by one party as a condition precedent to the ability of the other party to perform another term, especially an essential term such as the nomination of a single loading port, the term as to time for the performance of the former obligation will in general fall to be treated as a condition. Until the 15 consecutive days’ notice had been given, the respondents could not know for certain which loading port they should nominate so as to ensure that the contract goods would be available for loading on the ship’s arrival at that port before the end of the shipment period.”

+ + + + + + + + 164. + +

Lord Scarman agreed with Lord Wilberforce and Lord Roskill that the term was a condition and said at p 718C-E:

+ + + + +

“The difficulty in the present case is, as Mr Buckley’s excellent argument for the appellants revealed, to determine what is the true construction of the completed clause 7 of GAFTA form 119, which the parties incorporated in their contract. After some hesitation, I have concluded that the clause was intended as a term, the buyer’s performance of which was the necessary condition to performance by the seller of his obligations. The contract, when made, was, to use the idiom of Diplock LJ. [1962] 2 Q.B. 26, 65 and Demosthenes (Oratt. Attici, Reiske 867.11), “synallagmatic,” i.e. a contract of mutual engagements to be performed in the future, or, in the more familiar English/Latin idiom, an “executory” contract. The seller needed sufficient notice to enable him to choose the loading port: the parties were agreed that the notice to be given him was 15 days: this was a mercantile contract in which the parties required to know where they stood not merely later with hindsight but at once as events occurred. Because it makes commercial sense to treat the clause in the context and circumstances of this contract as a condition to be performed before the seller takes his steps to comply with the bargain, I would hold it to be not an innominate term but a condition.”

+ + + + + + + + 165. + +

Lord Lowry said at p. 719E-720D:

+ + + + +

“The second general point which I desire to mention concerns stipulations as to time in mercantile contracts, in regard to which it has been said that, broadly speaking, time will be considered to be of the essence. To treat time limits thus means treating them as conditions, and he who would do so must pay respect to the principle enunciated by Roskill L.J. in Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. [1976] Q.B. 44, 71A, that contracts are made to be performed and not to be avoided. The treatment of time limits as conditions in mercantile contracts does not appear to me to be justifiable by any presumption of fact or rule of law, but rather to be a practical expedient founded on and dictated by the experience of businessmen, just the kind of thing which Bowen L.J. could have had in mind when framing his classic observations on the implied term in The Moorcock (1889) 14 P.D. 64, 68:

+ + + +

“Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side: and I believe if one were to take all the cases, and they are many, of implied warranties of covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances. Now what did each party in a case like this know? For if we are examining into their presumed intention we must examine into their minds as to what the transaction was.”

+ + + +

This passage has stood the test of time and I commend it to all lawyers who undertake to advise their clients on mercantile affairs.

+ + + + +

In order to identify an implied term (concerning which both parties to the contract, being men of business, would say, “of course; it goes without saying") one must construe the contract in the light of the surrounding circumstances and, to understand how that is done, we cannot do better than read the passage from Lord Wilberforce’s speech in the Reardon Smith case [1976] 1 W.L.R. 989, 995E—997C to which my noble and learned friend, Lord Scarman, has already referred your Lordships.”

+ + + + + + + + 166. + +

I emphasise three further aspects of the decision. First, both Lord Wilberforce and Lord Roskill recognised that the court should not be too ready to treat terms as conditions unless the terms of the contract clearly indicated such an intention. Secondly, Bunge v Tradax was a case in which the term in question carried a dependent term: performance of the nomination by the buyers was necessary in order to enable the sellers to fulfil their obligation to nominate the loading port and ship the goods. It was therefore an example of a case in which performance of the relevant term by one party was a condition precedent to the ability of the other party to perform another term which was itself a condition. This was treated by Megaw LJ and Lords Wilberforce, Scarman and Roskill as an important feature of the case. That is not a feature of the term requiring payment of hire in the present case. That this is an important and potentially critical distinction is illustrated by Universal Bulk Carriers Ltd v Andre et Cie [2001] 2 Lloyd’s Rep 65, especially per Clarke LJ as he then was at paragraphs [26]-[32].

+ + + + 167. + +

Thirdly, the endorsement by Lords Roskill and Wilberforce of the passage in paragraph 482 of Vol 9 of the 4th edition of Halsbury’s Laws, to the effect that “broadly speaking” time is of the essence in commercial contracts, requires further comment. The cases footnoted in that paragraph in support of the proposition were Reuter v Sala, Bowes v Shand and the other authorities considered by Megaw LJ at [1980] 1 Lloyds Rep at pp. 306-7. All were concerned with contractual obligations other than an obligation to make payment, as was, of course Bunge v Tradax itself. There is no such presumption in respect of terms providing for payment in commercial contracts, in respect of which generally speaking time is not of the essence unless a contrary intention clearly appears from the terms of the contract, or the surrounding circumstances, as exemplified by s. 10 of the Sale of Goods Act 1979. The position had recently been analysed by the House of Lords in United Scientific Holdings v Burnley Borough Council [1978] AC 904, in which it was held that the time for performance of steps under a rent review clause was not of the essence. Lord Diplock said at p. 924C-E:

+ + + + +

“I shall have to examine rather more closely what are the legal consequences of “time being of the essence” and time not being of the essence; but I do not think that the question of principle involved in these appeals can be solved by classifying the contract of tenancy as being of a commercial character. In some stipulations in commercial contracts as to the time when something must be done by one of the parties or some event must occur, time is of the essence; in others it is not. In commercial contracts for the sale of goods prima facie a stipulated time of delivery is of the essence, but prima facie a stipulated time of payment is not (Sale of Goods Act 1893, section 10 (1)); in a charterparty a stipulated time of payment of hire is of the essence. Moreover a contract of tenancy of business premises would not appear to be more of a commercial character than a contract for sale of those premises. Nevertheless, the latter provides a classic example of a contract in which stipulations as to the time when the various steps to complete the purchase are to be taken are not regarded as of the essence of the contract.”

+ + + + + + + + 168. + +

He went on to explain the historical difference in approach of Courts of common law and equity prior to the Judicature Act 1873 which gave preference to the rules of equity. In relation to the latter he summarised the position at p. 927C-E

+ + + + +

“My Lords, the rules of equity, to the extent that the Court of Chancery had developed them up to 1873 as a system distinct from rules of common law, did not regard stipulations in contracts as to the time by which various steps should be taken by the parties as being of the essence of the contract unless the express words of the contract, the nature of its subject matter or the surrounding circumstances made it inequitable not to treat the failure of one party to comply exactly with the stipulation as relieving the other party from the duty to perform his obligations under the contract. The Court of Chancery had reached this position in relation to contracts for the sale of land by the extension by Lord Eldon L.C. of the earlier doctrine that a stipulation as to the time of repayment by the mortgagor under a legal mortgage was not of the essence of the contract so as to entitle the mortgagee to refuse to reconvey the property if payment with interest was tendered after the stipulated date was passed: Seton v. Slade (1802) 7 Ves. Jun. 265.”

+ + + + + + + + 169. + +

As to the common law, at p. 925G he pointed out that it had been established in Martindale v Smith (1841) 1 QB 389 and embodied in the Sale of Goods Act 1893 that the time of payment in a contract for the sale of goods is not of the essence unless made so by an express term. He summarised the common law position at p. 928A-C;

+ + + + +

“My Lords, I will not take up time in repeating here what I myself said in the Hongkong Fir case, except to point out that by 1873:

+ + + (1) + +

Stipulations as to the time at which a party was to perform a promise on his part were among the contractual stipulations which were not regarded as “conditions precedent” if his failure to perform that promise punctually did not deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract;

+ + + + (2) + +

When the delay by one party in performing a particular promise punctually had become so prolonged as to deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract it did discharge that other party from the obligation to continue to perform any of his own promises which as yet were unperformed;”

+ + + + + + + + + 170. + +

Having drawn attention to particular considerations involving contracts for the sale of land and options, he concluded that a stipulation as to time in a rent review clause was no different from any other term in a synallagmatic contract where the obligation arises upon the occurrence of a described event and concluded at p. 930G.

+ + + + +

“So upon the question of principle which these two appeals were brought to settle, I would hold that in the absence of any contra-indications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances the presumption is that the time-table specified in a rent review clause for completion of the various steps for determining the rent payable in respect of the period following the review date is not of the essence of the contract.”

+ + + + + + + + 171. + +

The principle that stipulations as to time of payment are not generally to be regarded as of the essence in commercial contracts unless a contrary intention appears from the contract or the surrounding circumstances has been judicially restated on a number of occasions: see for example per Christopher Clarke J, as he then was, in Dalkia Utilities Services Plc v Celltech International Ltd [2006] 1 Lloyd’s Rep 599 at paragraphs [130]-[131]. It is reflected in the current edition of Chitty on Contracts at paragraph 12-037 and Halsbury’s Laws Vol 22 at paragraph 502.

+ + + + 172. + +

In Stocznia Gdanska SA v Latvian Shipping Co & others [2002] 2 Lloyd’s Rep 436 the Court was concerned with a shipbuilder’s right to rescind and claim damages for the failure of the buyer to pay instalments for six ships being built at the yard. The contracts provided a 21 day grace period, following which there was a contractual right on the part of the yard to rescind. The relevant aspect of the decision for present purposes is that addressing the buyer’s argument that the failure to pay the keel laying instalment on the first contract was not repudiatory, such that the contractual right of rescission did not carry with it an entitlement to damages. Rix LJ, giving the leading judgment, held at paragraphs [74]-[76] that the buyer’s breach was a renunciation whether or not the payment provision was a condition or innominate term, but went on, obiter, to conclude that the payment term was a condition. He said:

+ + + + “77. + +

Mr. Glennie pointed out that time for payment under a commercial contract is not normally of the essence, i.e. that time for payment is not normally a condition of such a contract: see for instance s.l0 of the Sale of Goods Act, 1979. That is true as far as it goes: see Bunge Corporation v. Tradax Export S.A., [1981] 2 Lloyd’s Rep. 1; [1981] 1 W.L.R. 711.

+ + + +

……….

+ + + + + 79. + +

Moreover, The Georgios C is in my judgment of little assistance. It may be the case that in a withdrawal clause construed to mean “and for so long as default continues” the clause itself does not amount to a condition and thus the breach of non payment does not ipso facto amount to a repudiation. Since the clause only permitted withdrawal if the default was still continuing at the time of withdrawal, any remarks on the subject were in any event necessarily obiter. Our clause, however, is different from that in The Georgios C, not because it did not permit late payment as a remedy preventing rescission, for it allowed a period of grace of 21 days (cl. 5.05 first paragraph), but because it stated that those 21 days were the limit of such period of grace. There was in fact no right of rescission immediately Latreefers failed to pay by the due date, but only upon default 21 days after the due date of payment. In a contract where a vessel is to be built with funds provided by the purchaser in stages, an instalment notice is to be given requiring payment within five banking days, and a further 21 days of grace are then allowed, I do not see why provision for what is then called default entitling rescission should not be regarded as setting a condition of the contract.

+ + + + 80. + +

In any event, the jurisprudence regarding time charter withdrawal clauses does not end with The Georgios C, which was itself overruled in Mardorf Peach & Co. Ltd. v. Attica Sea Carriers Corporation of Liberia (The Laconia), [1977] 1 Lloyd’s Rep. 315; [1977] A.C. 850. In Antaios Compania Naviera S.A. a Salen Rederierna AB (The Antaios) [1984] 2 Lloyd’s Rep. 235; [1985] A.C. 191 the withdrawal clause under consideration operated “failing the punctual and regular payment of the hire or on any breach of this charter party”. The House of Lords held that “any breach” meant any repudiatory breach — “that is to say: a fundamental breach of an innominate term or a breach expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongly repudiated by the charterers” (per Lord Diplock at p. 238, col. 1; p. 200F). Although the point has not been decided and is perhaps controversial, there must be a good argument that it follows that the express right to withdraw in the case of unpunctual payment under such a clause is a condition of the contract, breach of which is in itself repudiatory.”

+ + + + + + + + 173. + +

For reasons I have endeavoured to explain, I do not regard the overruling of The Georgios C on another point in The Laconia as denting the authority of what Donaldson J and Lord Denning said about payment of hire not being a condition; nor is there to my mind anything in The Antaios which supports the proposition that payment of hire is a condition. I do not derive any particular assistance from the conclusion that the instalment payment in the shipbuilding contract in that case was a condition. The position of a yard under such a contract is very different to that of a shipowner under a time charter. In the latter case the withdrawal clause leaves the owner free to employ his vessel profitably elsewhere and puts an end to any loss continuing to be caused to the owner resulting from the termination, other than the loss of bargain which crystallises on termination. By contrast a shipbuilder exercising a right to terminate for default in payment by his buyer is left with an unfinished vessel in his yard whose presence will cause continuing damage. It is easy to see why in such circumstances the shipbuilder and buyer might be thought to have intended that the termination should not merely put an end to future obligations but oblige the buyer to pay for the losses flowing from the termination.

+ + + + 174. + +

Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] 1 Lloyds Rep 461 was a shipbuilding case in which buyers invoked a contractual right to terminate for delay by the yard in completion of three vessels and the question arose whether they were entitled to damages for loss of bargain. The Court of Appeal held that they were. The delay in that case was sufficient to be repudiatory or renunciatory if the term was an innominate term, such that the question whether it was a condition was not in issue. The argument for the buyers was that the contractual termination provision, clause 10, displaced the common law right to treat the contract as repudiated and/or was a complete code regulating rights flowing from the breach so as to excluded liability for the breach. The decision is not therefore directly in point. Nevertheless Moore-Bick LJ, who gave the leading judgment, made various statements which in The Astra Flaux J considered provided support for his conclusion that non payment of hire in a time charter is a breach of condition. Moore-Bick LJ said:

+ + + + +

“The nature of the contract

+ + + + 12. + +

The contract in the present case is one for the sale of future goods, in this case a vessel, to be constructed by the seller (the yard) and delivered to the buyer (Gearbulk) by an agreed date. It contains many detailed provisions relating to the specification and performance of the vessel, as well as other matters. In relation to delay in delivery and deficiencies in speed, fuel consumption and deadweight capacity it provided for the payment of liquidated damages by the yard and, if the delay or any of the deficiencies exceeded a certain level, ultimately gave Gearbulk a right to terminate the contract. The contract also gave the yard a right to terminate it if Gearbulk failed to pay an instalment of the price when it became due.”

+ + + +

………..

+ + + + + “14. + +

It is inherent in the nature of a legally binding contract that each party expects to obtain the benefit of the bargain into which he has entered or, if the contract is not performed, a right to recover compensation in the form of damages for the loss of that benefit. Accordingly, in a case where one party’s breach is such as, in the words of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] 2 Lloyd’s Rep 478: [1962] 2 QB 26, to deprive the other of substantially the whole benefit which it was intended that he should obtain from the contract, the common law recognises the right of the injured party to treat the contract as discharged and to recover damages for the loss of the bargain. Such a breach is commonly described as “going to the root of the contract”. That is all trite law, but it provides the underpinning, should it be required, for Mr Boyd QC’s submission that parties to a contract of this kind, or indeed to any contract, enter into negotiations in the expectation that if one of them commits a breach which goes to the root of the contract in the sense just described, the other will be entitled to recover damages for the loss of his bargain. The parties may, of course, agree to depart from that position, but that is the point from which they start.

+ + + + 15. + +

Whether a breach is sufficiently serious to go to the root of the contract depends on the terms of the contract and the nature of the breach, but it is open to the parties to agree that the breach of a particular term, however slight, is to be treated as having that effect and shall therefore entitle the other to treat the contract as repudiated. Different words have been used to express that intention. The use of the word “condition” will usually (though not always — see Wickman Machine Tool Sales v Schuler AG [1973] 2 Lloyd’s Rep 53; [1974] AC 235) be sufficient, but many other forms of wording can be found. Sometimes the consequences of a breach are spelled out and sometimes they are not; in each case it is necessary to construe the contract as a whole to ascertain what the parties intended.

+ + + +

…………

+ + + + + “20. + +

In my view Mr Dunning’s submission fails properly to recognise the true nature of the contract. The primary purpose of article 10 in the present case is to provide an agreed measure of compensation for breaches of contract by way of delay in delivery and deficiencies in capacity and performance which, although important, do not go to the root of the contract. For these the parties have agreed the payment of liquidated damages which are to be deducted from the final instalment of the price and to that extent their agreement displaces the general law, at least as regards the measure of damages recoverable for a breach of that kind. However, they have also agreed that there comes a point at which the delay or deficiency is so serious that it should entitle Gearbulk to terminate the contract. In my view they must be taken to have agreed that at that point the breach is to be treated as going to the root of the contract. In those circumstances the right to terminate the contract cannot sensibly be understood as anything other than embodying the parties’ agreement that Gearbulk has the right to treat the contract as repudiated, with (subject to Mr Dunning’s alternative argument) the usual consequences. The same holds true in relation to the yard’s right to terminate the contract under article 5.7. Although the parties may have agreed to exclude, in whole or in part, Gearbulk’s right to recover damages for a repudiatory breach on the part of the yard, I am unable to accept that they intended to create by their contract a situation which differed in its effect from that which would arise on the acceptance of a repudiation under the general law. Article 5.9 and article 10 simply identify the circumstances in which one or other of the parties is entitled to treat the contract as discharged by the other’s breach. In para 88 of his judgment in Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436 Rix LJ expressed the view that where contractual and common law rights overlap it would be too harsh to regard the use of a contractual mechanism of termination as ousting the common law mechanism, at any rate against a background of an express reservation of rights. In this case I would go further. In my view it is wrong to treat the right to terminate in accordance with the terms of the contract as different in substance from the right to treat the contract as discharged by reason of repudiation at common law. In those cases where the contract gives a right of termination they are in effect one and the same.”

+ + + + + + + + 175. + +

No doubt what Moore-Bick LJ meant by “those cases” were the factual circumstances triggering the clause in the contracts before him. I apprehend that he was not intending to set out a general rule that whenever a contract contains a termination clause, the clause is to be treated as equivalent to a right to accept a repudiatory breach at common law, a proposition which would be inconsistent with the very existence of options to cancel.

+ + + + 176. + +

I find nothing in this decision or reasoning which advances the current debate. As Flaux J recognised at paragraph [99] of The Astra there are important differences between the shipbuilding contract in that case and the contractual termination framework within it, and right of withdrawal for non payment of hire in a time charter. This decision seems to me to be no more than a conventional application of the principle in Financings v Baldock that the exercise of a contractual right of termination will prima facie also be treated as an acceptance of repudiatory breach if and to the extent there has been such a breach unless the language of the clause and the contract dictates otherwise.

+ + + +

The language of the charterparties

+ + + + + 177. + +

Clause 77 of the SPAR Vessel charters, which permits GCS to cancel if the vessel is off hire for more than 60 days, affords an example of these owners and charterers agreeing an option to cancel. Off hire events are not confined to breaches of contract by Spar, although such events will commonly be breaches. It is common ground that clause 77 is directed only to future obligations: if it is triggered by the vessel being off-hire for more than 60 days and GCS elects to terminate the charterparty, both parties are relieved from further performance; but GCS does not thereby gain a right to damages for losses flowing from the termination. If GCS were to lose the balance of a profitable charter on a rising market, it would have no claim against Spar unless Spar’s conduct was a repudiation or renunciation permitting termination apart from the clause.

+ + + + 178. + +

This suggests that there is nothing inherent in the particular relationship between owners and charterers created by a time charter which is inimical to an option to cancel, and that it is a form of termination provision not only known to the law but within the particular contemplation of these contracting parties.

+ + + + 179. + +

Both Mr Phillips and Mr Coburn sought to gain assistance from the words in the clause “Failing the punctual payment of hire, or any fundamental breach whatsoever of this Charter Party.” Mr Phillips’ suggestion that “whatsoever” links the two halves of the clause so as to treat punctual payment of hire as part of a genus to which the two halves of the clause belongs seem to me to put more weight on the word than it will bear. It is merely a word of emphasis governing the word “any”, emphasis which is understandable since in the previous NYPE form “any” had been held not to mean any. Moreover if the new wording introduced into the 1993 NYPE form was consciously intended to reflect The Antaios, including Lord Diplock’s terminology used there and in Photo Productions and The Afovos, it is arguable that fundamental breach is not part of a genus to which breach of condition belongs, being a repudiatory breach of an innominate term in contradistinction to a breach of condition. This may be reading too much into the language, and was not a point advanced in argument before me, which proceeded on both sides on the premise that the second half of the clause applied to repudiatory breaches including breaches of conditions. I do not think that the position is affected by whether fundamental breach means a repudiatory breach, as was held to be the meaning of any breach in the 1948 form in The Antaios, or is more narrowly confined to breach of an innominate term so as to exclude breach of condition. As Mr Coburn pointed out, there is no use of the word “other” in the second half of the clause, or anything else directly linking the two halves to a single genus. There is simply no language connecting the two halves of the clause.

+ + + + 180. + +

I was similarly unpersuaded that the saving “without prejudice to any claims they (the Owners) may otherwise have on the Charterers” assisted the debate although both parties invoked the words in support of their contentions. Those words make clear that accrued rights to debts or damages which have already accrued at the time of termination are not affected; that casts no light on whether the right of termination is to take effect only as a release from future performance as an option to cancel or is a recognition of breach of a condition sounding in damages flowing from the termination itself.

+ + + + 181. + +

I also attach no significance to the additional remedy introduced into the 1993 NYPE form which has no counterpart in the common law, enabling Owners to withdraw the vessel temporarily. Had this been a bespoke clause with no history I might have regarded that as an indication that the parties intended the clause to affect future performance only, without affecting such common law rights as would exist but for the clause. But the history of withdrawal clauses in time charters generally, and the previous NYPE form, suggests that this was simply intended as an additional remedy and could not by a side wind change the effect of a clause providing for withdrawal simpliciter.

+ + + + 182. + +

Mr Phillips attached particular significance to the so called anti-technicality provisions of clause 11(b) and argued that they were to be treated as an indication that time was intended to be made of the essence by a three day period of grace following a notice. I cannot accept that such was their intention. Anti-technicality clauses of this kind arose against the background of the strict construction of withdrawal clauses and the risks of drastic consequences for charterers acting in good faith from errors in the banking system exemplified by the cases in the 1970s and 1980s. That it was the intention of clause 11(b) merely to mitigate these risks is apparent from the fact that its wording makes it applicable where the failure to make payment is due to oversight, negligence, errors and omissions on the part of the Charterers or their bankers. It is doubtful whether that provision would prevent owners exercising the right to withdraw immediately if charterers simply decided that they were unwilling to pay until served with a notice.

+ + + + 183. + +

Moreover all that the anti-technicality provision does is to require a notice, after hire has fallen due and remains unpaid, followed by a further period of grace, as a condition which must be fulfilled, at least in some circumstances, before the right of withdrawal may be exercised. It is directed solely to the circumstances in which the contractual right arises; it can say nothing about what rights arise apart from the contractual right of termination conferred by the clause.

+ + + + 184. + +

There are in any event conceptual difficulties with the analogy between anti-technicality clauses and notices making time of the essence. There is an important distinction between, on the one hand, a provision in the contract that time is to be of the essence in relation to a particular term, by which the parties accord it the status of a condition, and on the other, a notice making time of the essence. The former makes the failure to comply a breach of condition when it occurs. The latter presupposes that the breach is of an innominate term, not a breach of condition, when it occurs, and is not at that stage repudiatory; it seeks to put the innocent party in a position to treat the continuing breach as repudiatory or renunciatory. A notice to make time of the essence does not convert an innominate term into a condition. Failure to make payment before the expiry of the notice period is not a breach of condition; on the contrary it is merely of evidential significance in relation to whether the breach of the innominate payment term is thereafter to be treated as repudiatory or renunciatory. The principles were summarised by Christopher Clarke J in Dalkia v Celtech at paragraph 131 as follows:

+ + + + “131. + +

In Re Olympia & York Canary Wharf Ltd (No 2) [1993] BCC 159 Morritt J, as he then was, considered the authorities relating to the making of time of the essence. From that analysis and other authority I derive the following propositions:

+ + + (a) + +

Equity, before the Judicature Acts, insisted that prima facie time for payment was not essential. But equity’s patience was exhaustible. It would allow the contract to be treated as repudiated if the party in default had been given the opportunity to mend his ways by the giving of a notice to comply within a reasonable time. Whilst this is described as making time of the essence in reality the notice is the means of bringing to an end equity’s interference with the contract: Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1;

+ + + + (b) + +

Such a notice, which may be given in respect of any species of term, may not be served until the time for performance has expired; but it may be served as soon as that time arrives;

+ + + + (c) + +

Such a notice must state clearly what the other party is required to do and the consequence if he fails ie that the contract may he terminated: Afovos Shipping Co SA v R Pagnan and Flli (The Afovos) [1982] 1 Lloyd’s Rep 562, 565 col 2; [1982] 1 WLR 848, 854C;

+ + + + (d) + +

If the defaulting party fails to perform after service of such a notice, the failure is not automatically a repudiation of the contract, giving rise to a right to terminate. The breach must go to the root of the contract;

+ + + + (e) + +

The notice operates as evidence of the date by which the promisee considers it reasonable to require the contract to be performed, failure to perform by which is evidence of an intention not to perform: see Lord Simon of Glaisdale in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, 946E—947A; Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC) para 147.”

+ + + + + + + + + 185. + +

What then is the position on owners’ argument once hire has fallen due but before a notice has been given, or before expiry of the three days from the giving of a notice? Is the non payment a breach of condition? If so, the anti-technicality notice can have no bearing on the question. Is it a breach of an innominate term? If so, the term does not change its status simply by the giving of a notice. Or is it no breach at all, such that there is only ever a default if and when a notice has been given and three days have elapsed? That would be inconsistent with the primary obligation being expressed to be the payment of hire 15 days in advance.

+ + + + 186. + +

For all these reasons I do not consider that the anti-technicality provision in clause 11(b) assists owners’ argument. It merely indicates that the strictness of the right to withdraw under the clause is to be tempered to provide for mishaps in circumstances in which the clause will have potentially drastic consequences for charterers in a rising market. That does not dictate that it should be regarded as more than an option to cancel. In Financings v Baldock there was a 10 day grace period before the contractual right of termination arose. That was not regarded as something which turned the payment obligation into a condition.

+ + + + 187. + +

There is one aspect of the language of the clause to which I do attach particular significance. It is that what the clause seeks to identify as the consequence of the triggering event is a remedy in the form of a liberty to withdraw the vessel from service. It does not say that payment of hire is to be treated as a condition, or that the time of payment is to be treated as of the essence. It does not purport to confer a right to damages where such a right would not otherwise exist. Its language is more naturally indicative of an option to cancel directed solely to future performance, not as something intended to impose new liabilities.

+ + + +

Analysis and conclusions

+ + + + + 188. + +

As is apparent from my review of the authorities, those which expressly address or mention the question whether payment of hire in time charters is a condition do not speak with one voice. That payment of hire is not a condition is supported by the dicta of Donaldson J and Lord Denning in The Georgios C, in passages not affected by the overruling of the decision in The Laconia; the judgment of Brandon J in The Brimnes and its implicit approval by a strong Court of Appeal (Edmund Davies, Megaw, Cairns LLJ) in that case; the dicta of Mocatta J in the Agios Giorgis; and the dicta of Lord Sumption and Lord Mance in The Kos, together with the dicta of Andrew Smith J and the concession by Eder J as counsel in that case. On the other hand authority that payment of hire is to be treated as a condition is to be found in the dicta of Lord Diplock in United Scientific Holdings, The Afovos and The Scaptrade; the dicta of Lord Roskill in Bunge v Tradax; the concession by Lord Steyn as counsel in the Scaptrade; the dicta of Rix LJ in Stocznia Gdanska v Latvia (although not expressed as a concluded view); and not least the reasoned judgment of Flaux J in The Astra.

+ + + + 189. + +

Lord Diplock said in The Antaios at p. 204B that dicta are of persuasive strength, depending upon the professional reputation of the judge who voiced them. In this case dicta come from judges on each side with great experience in this area of commercial law and practice, who command the very greatest respect. It would be invidious to seek to ascribe relative weight to the professional reputations of each of those identified. The solution to this issue is not to be found by a judicial game of cards, allocating to the authors of the views the status of colour cards or trumps so as to assess which is the stronger hand.

+ + + + 190. + +

I start with the approach which I take to be supported by Financings v Baldock, that a contractual termination clause should be treated as an option to cancel which does not confer greater rights to damages at common law than would exist apart from the clause unless there is clear language to that effect.

+ + + + 191. + +

There is no such clear language in clause 11 or elsewhere in these charters. On the contrary, the language of clause 11, providing for a liberty to withdraw the vessel from service, addresses itself solely towards future performance. Save in relation to future performance the clause neither expands nor restricts the rights of the parties. It does not purport to confer a right to damages where none would otherwise exist, nor to remove a right to damages where such right would otherwise exist. In short it is neutral as to the common law rights of the parties apart from the clause.

+ + + + 192. + +

A clause which merely provides a contractual remedy for default is not naturally to be interpreted as determining what remedies are available if the contractual remedy is not relied on. Moreover if it had been intended to introduce a provision to make clear that payment of hire was a condition, one would expect it to be framed by reference to the term requiring payment, stating that it was to be treated as a condition or that time of payment was to be of the essence, which was the formula used in the bareboat charter in Parbulk II A/S v Heritage Maritime Ltd SA (The Mahakan) [2012] 1 Lloyd’s Rep 87.

+ + + + 193. + +

For reasons which I have endeavoured to explain, the existence of the anti-technicality provision in clause 11(b) does not detract from this analysis.

+ + + + 194. + +

I therefore reject the submission that the effect of the withdrawal clause is to make payment of hire a condition. The critical question which arises is whether payment of hire would be treated as a condition in the absence of the withdrawal clause. A number of considerations suggest that it would not.

+ + + + 195. + +

First, there is force in the point which formed part of the successful argument of Mr Robert Goff QC, as he then was, on behalf of charterers in The Brimnes, that provision for an express right of withdrawal for failure to pay hire tends to show that the obligation was not otherwise of such a character as to be a condition. The very inclusion of the contractual right of withdrawal for non payment of hire suggests that in its absence there would be no such right. Such a provision would be otiose if the owner had the right at common law to put an end to the contract for any default in payment of hire as a breach of condition. It is clear from Lord Diplock’s speech in The Afovos that he would have regarded the term as an innominate one in the absence of a withdrawal clause.

+ + + + 196. + +

Secondly, there is the presumption that in mercantile contracts, stipulations as to the time of payment are not to be treated as conditions absent a contrary indication in the contract, of which there is none in these charters.

+ + + + 197. + +

Thirdly, predicated breaches of the term may range from the trivial to the serious. Default in punctual payment may consist in being marginally late, by accident, causing no loss to owners or loss which is insignificant in the context of the long term charter as a whole. In this respect the payment term carries the hallmarks of an innominate term. Bunge v Tradax establishes that this is not determinative, but nor is it irrelevant. Absent considerations of commercial certainty which dictate a different result, the general approach should be that where predicated breaches of a term may have consequences ranging from the trivial to the serious, that is a strong indication that it is to be treated as an innominate term. This applies as much to a time charter as any other form of contract (see for example Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] AC 757 per Lord Wilberforce at p. 778F).

+ + + + 198. + +

Fourthly I cannot conceive that in the absence of a contractual withdrawal clause, owners and charterers should be taken to have intended that a payment of hire a few minutes late would entitle the owners to throw up a five year charter. It would not satisfy the test for an implied term which Lord Lowry suggested in Bunge v Tradax as a useful guide. I do not regard that conclusion as put in doubt by what was said in The Petrofina, The Laconia, The Mihalios Xilas and other cases emphasising the importance to owners of punctual advance payment. Those are good reasons for giving a stringent interpretation to a contractual option to cancel where that is what the parties have bargained for in clear terms; they provide no warrant for supposing that the parties would have had such an intention if they had not contracted for a right of withdrawal in such circumstances. Although they may also colour the approach to the factual inquiry whether the default deprives the shipowner of substantially the whole benefit of the contract, and may justify setting the bar at which non payment is repudiatory or renunciatory at a lower level than would be the case in relation to payment obligations under contracts of a different nature, I cannot regard them as sufficient to justify any failure to pay hire punctually being treated as allowing owners to put an end to a long term time charter in the absence of express agreement.

+ + + + 199. + +

Fifthly, I do not regard considerations of commercial certainty as pointing to a different conclusion. As Lord Roskill observed in Bunge v Tradax certainty is a desideratum which must be counterbalanced with the need not to impose liability for a trivial breach in undeserving cases.

+ + + + 200. + +

Moreover a very considerable measure of certainty is conferred by the withdrawal clause itself as an option to cancel. There is no uncertainty over the ability to put an end to future performance. It is true that if payment of hire is an innominate term and the right to terminate only entitles owners to termination damages if the breach is repudiatory, the owners will not have absolute certainty in a fallen market in determining when the exact moment comes at which exercising the right will enable them to recover damages for the loss of bargain. But that is an uncertainty regularly faced by commercial parties whose contracts commonly contain innominate terms, and charterparties contain many such terms (for example as to seaworthiness). I see no reason why shipowners should be treated more favourably in this respect than others; owners of vessels are not unique in the commercial world in relying on prompt payment by their contractual counterparty to finance their performance of the contract.

+ + + + 201. + +

In this context it is significant that until The Astra, Brandon J’s conclusion in The Brimnes on this point was generally accepted in the shipping community, as the editors of Time Charters 7th edn observe at paragraph 6.129, although the point was not regarded as free from controversy. In the 40 years since, owners and charterers have conducted business, and resolved disputes, on the footing that the payment of hire is not a condition, or at the very least may not be. The NYPE, Baltime and Shelltime forms of time charter have not been altered to make clear that payment of hire is a condition; nor so far as I am aware have any other standard time charterparty forms. Nor has there grown up any regular practice of including bespoke terms to that effect in time charters (cf the term that payment of hire should be of the essence in a bareboat charter in The Mahakan). Markets have not been on an uninterrupted rise throughout this period but have risen and fallen in cycles. There have been many disputes in arbitration in which the conduct of charterers has fallen to be examined to see whether failures to pay hire are sufficiently serious to be repudiatory or renunciatory. None of this suggests that the shipping community considers the desideratum of commercial certainty to be such as to require payment of hire to be treated as a condition.

+ + + + 202. + +

In The Astra Flaux J gave four reasons for concluding that payment of hire was a condition. The first, at paragraph [109], is that because the withdrawal clause makes clear that there is a right to terminate for any failure to make punctual payment, it makes clear that any non payment is sufficiently serious to justify termination, which is a strong indication that it was intended that a failure to pay hire promptly would go to the root of the contract and thus that the provision was a condition. This is in essence an acceptance of the argument of counsel for the owners recorded at paragraph [39], that the logical corollary of Diplock LJ’s analysis of what constitutes a condition is that if the contract provides for a right to terminate, that is a very strong indication that the term in question is a condition. I have endeavoured to explain why I believe this turns the passage on its head. Moreover its reasoning is difficult to reconcile with Financings v Baldock (which it is not apparent from the report was cited to Flaux J). Once it is recognised that a clause providing for termination on any breach of a term, however trivial, may constitute an option to cancel, the fact that the clause is triggered by such a breach tells one nothing about whether the term breached is to be characterised as a condition.

+ + + + 203. + +

Flaux J’s second reason, at paragraph [110], is that the general rule in mercantile contracts where there is a time provision requiring something to be done is that time is of the essence, subject to payment of the price in sale of goods which is not here relevant; and that the dicta in the House of Lords in The Petrofina, The Mihailis Xilas, United Scientific Holdings, Bunge v Tradax, and The Afovos all indicate that the obligation to pay hire punctually is such a provision where time is of the essence and hence a condition. As to this the presumption in commercial contracts is that stipulations as to time of payment are not of the essence in the absence of a clear indication to the contrary. The dicta in the cases about the owners’ commercial interest in prompt and punctual advance payment provide good reason for approaching a contractual option to terminate with the stringency which its unqualified terms require, but no reason additionally to treat the term as a condition conferring a right to terminate at common law with its different financial consequences: once the owner is able to invoke his option to cancel to put an end to future performance he is no longer obliged to fund the operation of the vessel for the benefit of the charterer. His interest in the prompt and punctual payment of hire for so long as he has to provide the services of the master and crew to the charterers disappears when he withdraws the vessel from service. Insofar as the dicta go beyond this and state in terms that payment of hire is a condition, as those of Lord Diplock and Lord Roskill undoubtedly do, they were not made after argument on the point and are counterbalanced by other judicial dicta and the decision of Brandon J in The Brimnes to the contrary.

+ + + + 204. + +

Flaux J gave four reasons for declining to follow the The Brimnes. The first (paragraph [111]) was that in that case the charter contained no anti-technicality clause. That seems to me to afford no real ground of distinction. The clause in The Astra, clause 31, was in materially similar terms to clause 11(b) of the SPAR charters save that it provided two banking days grace. It too was expressed in terms which only covered accidental lateness. I have sought to explain why the anti-technicality clause does not in my view indicate that time was intended to be of the essence and drawn attention to the fact that the 10 day grace period in Financings v Baldock was not treated as having that effect. Flaux J’s second reason for not following The Brimnes (paragraph [114]) was that the decision is inconsistent with the dicta in the House of Lords to which he referred. That would be good reason if the dicta undermined the reasoning, but again for reasons I have sought to explain I do not believe they do so, and in any event the decision also has the support of other dicta at the highest level. Flaux J’s third reason (paragraph [114]) was that Brandon J relied heavily on the dicta of Donaldson J and Lord Denning in The Georgios C, which was subsequently overruled in The Laconia. It was, however, overruled on a different point, not that for which Brandon J treated it as authoritative support. Flaux J’s fourth reason is that the speeches in The Laconia falsified the argument on behalf of charterers by Mr Robert Goff QC, as he then was, in The Brimnes that “punctual” added nothing to “payment” so as not to afford a ground for distinguishing The Georgios C. I do not regard anything said by the House of Lords in The Laconia as undermining Mr Goff’s argument: the relevant passages served to reaffirm the considerable commercial importance of payment of hire to owners, which exists irrespective of a reference to punctuality in the clause. On the contrary, Mr Goff’s submission that there was no relevant distinction between the forms of wording was supported by what Lord Wright had said at p. 94 of The Petrofina in the passage I have quoted above.

+ + + + 205. + +

The third of Flaux J’s reasons for concluding that payment of hire was a condition (at paragraph [115]) was the need for commercial certainty: if the right to withdraw the vessel for non payment left the owners with no remedy in damages on a falling market, save in cases where charterers’ conduct was repudiatory, that would leave owners in a position of uncertainty whether to soldier on with a recalcitrant charterer until such time as the owners were in a position to say that the charterers were in repudiatory breach. Insofar as having to “soldier on” is a disadvantage, it is no more than any commercial party faces as a result of the law that it is only breaches of innominate terms which are of a repudiatory character which allow a party to put an end to contractual obligations; whether that gives rise to uncertainty depends upon the application of settled law to common facts. I would endorse the view of the editor of Treitel on The Law of Contract 13th edn at paragraph 18-069 that the principal function of both conditions and express contractual termination provisions is to ensure certainty so far as the right to terminate is concerned. That can be achieved by an option to cancel without conferring an unmerited right to damages.

+ + + + 206. + +

Flaux J’s fourth reason for holding that payment of hire was a condition was that the conclusion was supported by the two shipbuilding cases, which, again for reasons I have endeavoured to explain, I do not view as having that effect.

+ + + + 207. + +

For these reasons and with the greatest respect I have felt unable to follow the decision of Flaux J on this point in The Astra, and have concluded that payment of hire by GCS in accordance with clause 11 of these charters is not a condition.

+ + + + + Issue 3: Was GCS’s conduct in relation to payment of hire a repudiation or renunciation? + + +

The law

+ + + + + 208. + +

The principles are well established and may be summarised as follows:

+ + + (1) + +

Conduct is repudiatory if it deprives the innocent party of substantially the whole of the benefit he is intended to receive as consideration for performance of his future obligations under the contract. Although different formulations or metaphors have been used, notably whether the breach goes to the root of the contract, these are merely different ways of expressing the “substantially the whole benefit” test: Hongkong Fir at pp. 66, 72; The Nanfri at pp. 778G-779D.

+ + + + (2) + +

Conduct is renunciatory if it evinces an intention to commit a repudiatory breach, that is to say if it would lead a reasonable person to the conclusion that the party does not intend to perform his future obligations where the failure to perform such obligations when they fell due would be repudiatory: Universal Carriers v Citati at p. 436, The Afovos at p. 341 col 2.

+ + + + (3) + +

Evincing an intention to perform but in a manner which is substantially inconsistent with the contractual terms is evincing an intention not to perform: Ross T Smyth & Co Ltd v T.D. Bailey, Son & Co [1940] 3 All ER 60, 72. Whether such conduct is renunciatory depends upon whether the threatened difference in performance is repudiatory. It is not here necessary to explore the position where the innocent party misappreciates the nature or scope of his obligations (see Woodar Investment Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 and Chilean Nitrate Sales Corporation v Marine Transportation Co Ltd (The Hermosa) [1982] 1 Lloyd’s Rep 570, 572-3).

+ + + + (4) + +

An intention to perform connotes a willingness to perform, but willingness in this context does not mean a desire to perform despite an inability to do so. As Devlin J put it in Universal Carriers v Citati at p. 437, to say: “I would like to but I cannot” negatives intent just as much as “I will not.”

+ + + + + 209. + +

It follows from these principles that conduct comprising a breach or breaches of obligations which have fallen due may be insufficient to be a repudiation but nevertheless be conduct which is a renunciation because it would lead the reasonable observer to conclude that there was an intention not to perform in the future, and the past and threatened future breaches taken together would be repudiatory. Such conduct is not infrequently referred to in the cases simply as a repudiation, but is more accurately described as a renunciation in the nomenclature I have adopted. The reason why a defaulting party commits an actual breach is generally irrelevant to whether it constitutes a breach, or whether the breach is a repudiation. But the reason may be highly relevant to what such breach would lead the reasonable observer to conclude about the defaulting party’s intentions in relation to future performance, and therefore to the issue of renunciation. Often the question whether conduct is a renunciation falls to be judged by reference to the defaulting party’s intention which is objectively evinced both by past breaches and by other words and conduct.

+ + + +

The facts

+ + + + + 210. + +

The position reached at time of withdrawal of the Vessels on 23 and 30 September 2011 can be summarised as follows:

+ + + (1) + +

GCS had regularly failed to pay hire punctually since mid-April 2011, a period of over 5 months. Almost all payments on all three Vessels were unpaid when they fell due. Some were not paid at all, others only months after they fell due. In those months, only in July were instalments paid on time or within a few days of falling due.

+ + + + (2) + +

For most of the period the arrears fluctuated between about US$1.5m and US$2.5m, and would have been up to US$1m more but for the exercise by Spar of its lien on sub-hire/sub-freights. If one takes a total of US$2m as a very rough average, this is broadly equivalent to about eight instalments over the three Vessels; individually the arrears of hire for the Vessels fluctuated between about one and four instalments.

+ + + + (3) + +

GCS had made clear that non payment was due to cash flow difficulties caused by the fall in the market which rendered it unable to meet its hire obligations to all the owners of its chartered fleet. Since June it had repeatedly said that it expected cash injection from its parent which would enable it to make punctual payments and pay off the arrears. Despite such indications it continued to fail to make punctual payments on all three Vessels. It twice promised to pay off half the arrears by 31 August but failed to do so.

+ + + + (4) + +

By the beginning of September GCS was emphasising its cash flow difficulties, providing no concrete payment proposal, and suggesting that it would merely pass on sub-hires when received, which in a market which had substantially fallen since the date of the charterparties was bound to amount to a significant shortfall on the hire due to Spar. It sought to excuse non payment of a SPAR DRACO instalment by saying that sub-charterers had not paid the sub-hire, suggesting that it would only (part) perform its hire obligations on each vessel if timeously paid the (insufficient) sub hire, an approach aptly described by Spar as hand to mouth.

+ + + + (5) + +

At no stage did GCS provide any detail of what amounts were expected to be received from its parent, or when; or of how any such receipts would be allocated amongst competing creditor shipowners. It provided no explanation as to why its avowed expectations were unfulfilled, or why it was unable to fulfil its promise to pay off half the arrears by the end of August.

+ + + + (6) + +

The only response from GCL to the request to fulfil its guarantee obligations was on 23 September 2011, when it indicated that the group was prioritising payment of bank interest over operational payments such as the hire due to Spar, and that “financial support will come” in October. This gave no explanation of how much financial support would come in October or when in that month. It made no concrete proposal for discharge of the liabilities and belittled the amount outstanding as a “relatively small sum”.

+ + + + + 211. + +

This would have led an objective observer to conclude that GCS was unwilling, because it was unable, to make punctual payments of hire for the balance of the charter periods, or to pay off the arrears, unless and until the market rose again to above March 2010 levels (which might never occur); and that such defaults would likely be substantial, involving delays of payments measured in weeks or months and arrears of the order of US$2 million or more. The avowed expectation that the position would be remedied by capital and cash flow injection from GCL in October would properly have been discounted by a reasonable owner in Spar’s position in the light of the past history of broken promises and confounded “expectations”, and by the lack of any specific assurance from GCL or HNA of how much it would provide or when, or as to how GCS would allocate it between competing creditor shipowners. It is telling that GCS’ own characterisation, set out in its submissions in the arbitrations, was that “Charterers were willing to pay hire at the agreed rate, albeit not in advance due to the temporary cash flow problems and the internal restructuring”. The objective observer would not have treated such problems as “temporary” in the sense of short term: there was every indication that they would continue indefinitely.

+ + + + 212. + +

In those circumstances GCS was objectively evincing an intention not to perform the charters in a way which deprived Spar of substantially their whole benefit.

+ + + + 213. + +

Mr Coburn submitted that in a long term time charter, the question whether non payment of hire amounted to a repudiation was essentially a mathematical exercise in which the amount paid and its timing could be plotted on a graph against an equivalent timeline for regular and punctual payment; and that to determine whether the owners had been deprived of substantially the whole benefit of the charter, the gap between the two had to be compared with the total hire due for the whole charter period. So, he submitted by way of example, for a charterer to pay late for one month throughout the course of the charter would not be repudiatory. Looked at in this way, the benefit which Spar was intended to receive under the two five year charters was a total amount of hire of over US$30 million and under the three year charter a total of over US$18 million. Against this background falling into arrears by a few instalments constituting a small proportion of the total could not be said to be depriving Spar of substantially the whole benefit of the charters.

+ + + + 214. + +

I am unable to accept this submission. There are here relevant the many judicial pronouncements as to the importance to owners of punctual payment of hire in advance to which I have referred, and an important further consideration. If the charterer pays not in advance, but in arrears, even in full, he is performing a substantially different bargain from that which is contained in the charterparty. In assessing repudiation stricto sensu, ie past breach, late payment or non payment of several instalments may well not be repudiatory of a long term charter if, and it will usually be a big if, it casts no doubt on the ability and willingness of the charterer to pay off the arrears promptly and perform prompt payment in full in the future. In those circumstances a mathematical comparison of the missed payments and the total hire over the course of the charter may be appropriate. Where, however, such conduct evinces an intention not to make regular and punctual payments in the future the position is different. Occasional and brief delays in payment will not be repudiatory, but where the hire is due semi monthly in advance, regular delays measured in weeks often will be, because in those circumstances performance is substantially different from what has been bargained for, which is a charterparty under which the owner is to meet his obligations from the hire which has already been provided. Mr Coburn suggested that if a charterer paid punctually one month in arrears, that could equally well be characterised as paying promptly throughout the currency of the charter save that the first month’s debt is not paid off until the end of the charter. Quite apart from the rule that a creditor may choose how to allocate payments to outstanding debts, the flaw in this approach is that the charterer is still treating the owner as obliged to perform when he is a month out of pocket for the expenses needed to perform throughout the period of the charter. However described, in substance the position is that throughout the whole of the charter the charterer is getting the services on credit, without paying interest, when the bargain is that owners should be funded in advance.

+ + + + 215. + +

Accordingly I conclude that GCS had renounced the charterparties at the date of the termination notices, which are to be treated as an election to terminate the charters preserving Spar’s common law right to damages for loss of bargain arising out of such termination.

+ + + + +

Issue 4: What is the correct principle for the assessment of damages?

+ + + + 216. + +

The uncontroversial compensatory principle is that damages for breach of contract are intended to put the innocent party in the same financial position as if the contract had been performed. It may also be expressed as the claimant being entitled to the value in money of the contractual rights he has lost. See, for example Golden Strait Corpn v Nippon Kubisha Kaisha (The Golden Victory) [2007] 2 AC 353 per Lord Bingham at paragraph [9] and per Lord Scott at paragraphs [29]-[30].

+ + + + 217. + +

Where a charterer wrongfully repudiates a time charter and there is an available market at the date of termination in which the owner may let the vessel on time charter for the unexpired term, on materially equivalent terms save as to hire, damages are to be assessed by reference to the difference between the charterparty rate of hire and the rate for such substitute charter, irrespective of what employment the owner chooses for the vessel. Such is the principle established in Koch Marine Inc. v D’Amica Societa di Navigazione ARL (The Elena D’Amico) [1980] 1 Lloyd’s Rep 75 (for the converse situation of an owner’s repudiation). So much was common ground.

+ + + + 218. + +

It was also common ground that:

+ + + (1) + +

at the date of the termination of the SPAR CAPELLA and SPAR VEGA charters in September 2011, there was no market for a substitute time charter for the minimum unexpired term of those charters, which will expire in December 2015;

+ + + + (2) + +

there was throughout the period between September 2011 and today a market for time charters of the vessels for shorter periods, such that Spar would have been able, had they so chosen, to earn hire from time charter employment of the vessels for two or more successive charters; and

+ + + + (3) + +

Spar had acted reasonably in its choice of employment for the vessels and had not failed to mitigate its loss; nevertheless with hindsight Spar was disappointed with the earnings of the vessels in the Navig8 pool; had they been in time charter employment, the earnings of the two vessels over the period between September 2011 and today would have been several million dollars greater.

+ + + + + 219. + +

GCL submitted that in those circumstances Spar’s damages were to be calculated by reference to the market rate of hire obtainable under successive time charters, irrespective of the actual employment of the vessels. Spar contended that once it was established that there was no market for a time charter for the full unexpired term at the date of termination, the damages were to be measured by reference to the actual earnings of the vessels to date and projected actual earnings from now to expiry.

+ + + + 220. + +

The starting point for the analysis is that where there is an available market for a replacement time charter, damages are to be assessed by reference to the market rate because the owner is able to replace his loss of bargain in specie. He can replace the broken charter with exactly what he bargained for by entering into a replacement charter for the unexpired term on materially equivalent terms save as to hire. He is not bound to do so. But if he does not, it is his independent decision not to replace exactly what he has lost which is treated as the cause of the financial consequences of that chosen course, rather than the charterer’s renunciation. As Robert Goff J put it in The Elena D’Amico, “the decision not to take advantage of the available market is the independent decision of the innocent party, independent of the wrongdoing which has taken place” (p. 89 col 1). So if the owner chooses not to take advantage of an available market to replace his lost bargain, any loss he suffers from market fluctuations is irrelevant. The charterer’s breach is treated merely as the trigger or occasion for such loss, not the cause of the loss in law. The contractual rights whose loss is caused by the breach are easily valued because the cost of replacing them is readily identifiable by reference to an available substitute charter.

+ + + + 221. + +

Where at the date of termination there is no market available for a replacement charter for the full length of the unexpired term, there is no “available market”. This is because a time charter for a particular period reflects the appetite for risk which the owner and charterer are willing to take for that period. The agreed rate of hire is fixed for the period of the charter, during which market rates, whether on the spot market or for shorter term time charters, may vary up or down. Each party takes the risk that the hire locked in for the fixed term will prove more beneficial or burdensome than would have been the case had they fixed for a shorter period and been free, or required, to go into the market before the end of the fixed term. The length of the period for which each party is willing to take this risk is an essential element of the bargain. One element in determining the rate of hire will be a reflection of that risk. For these reasons the length of charters available in the market is an essential element in determining whether there is an available market for a replacement charter. A six month time charter represents a different bargain from a two year charter because of the different nature of the risk each party is willing to run. If the unexpired term is two years and there is no appetite in the market to fix for longer than six months, the owner cannot replace what he has lost in specie. Four successive six month charters are not a like for like replacement for a two year charter. His lost contractual rights cannot therefore be valued by reference to a market in which he can replace them.

+ + + + 222. + +

Once this is recognised, it is apparent that if at the date of termination there is no available market for a substitute charter of the length of the unexpired term of the broken charter, there is no question of the owner breaking the chain of causation in his choice of employment for the vessel over the unexpired term. He cannot replace the bargain he has lost. He has to choose to mitigate his loss by employing the vessel in a different kind of revenue earning contract. It follows that absent any argument of failure to mitigate, the owner’s loss in such a situation is to be calculated by reference to his actual earnings, irrespective of the availability of a market for two or more successive charters for the unexpired term. The availability of a market for shorter charters does not constitute an available market in which he can replace his lost bargain. Shorter time charters are merely one of a number of forms of substitute employment by which the owner may mitigate the loss caused by the charterer’s breach in circumstances where there is no ability to replace the lost bargain with a like for like replacement.

+ + + + 223. + +

A failure to replace the lost bargain with a series of successive shorter time charters does not break the chain of causation any more than a choice to employ the vessel on the spot market. Neither reflects an ability to replace the lost bargain in specie. Provided the course taken by the owner is reasonable, his actual earnings from the subsequent employment of the vessel in either manner, or a combination of the two, or any other combination of reasonable methods of earning revenue from the vessel, are legally caused by the charterer’s breach; and the amount by which actual earnings in such employment fall short of the hire which would have been earned under the broken charter is the measure of loss naturally arising out of the charterer’s breach.

+ + + + 224. + +

In support of this conclusion one may posit an unexpired term of five years in which there is always an available market for a replacement charter of two years but no longer. If there were some rule that damages are to be measured by reference to a series of successive time charters, is it by reference to a two year charter, followed by a two year charter, followed by a one year charter? Or one year, then two, then two? Or by five successive one year charters? Or by some other combination? Mr Coburn submitted that it was the first of these: that the owner was bound to let the vessel on the longest time charters he could get (or that damages should be assessed on the hypothesis that he had, if he chose not to do so). It is difficult to see any rational basis on which this should be so. What if the market rate of hire at the date of termination for a two year charter seems too low to the owner for the risk being run of a market increase in rates? Why should he not let the vessel for five one year charters for the unexpired term? And if he does so, why should he not agree a variable rate tracking a market index, as Spar did for the first year, rather than fixing a flat rate? Where there is an available market for a five year charter at a fixed rate, the answer is that he can replace his lost bargain with a like for like replacement, the bargain with the charterer having been to lock in a fixed rate to the end of the five years. But in the absence of such an available market, when the charterer’s breach has forced the owner into a succession of charters which do not involve being locked in for the full period, I see no reason why any particular form or combination of shorter employments should be deemed to be that in which the vessel must be engaged, or the yardstick by which the owner’s loss is to be calculated if he chooses a reasonable alternative.

+ + + + 225. + +

Mr Coburn argued that such an approach allowed the owner to speculate for his own reward but at the risk of the charterer. That is not so: if actual earnings are to be taken into account, the charterer will get the benefit of a favourable “speculation” by the owner. But in any event it is misleading to talk of the owner’s “speculation”. His need to make a decision as between different potential forms of employment for the vessel is the result of the charterer’s breach and the lack of an available market. It is subject to the duty to act reasonably to mitigate loss. Within that constraint, there is nothing unjust or contrary to principle in the charterer bearing the true loss which the owner has been caused by the charterer’s breach.

+ + + + 226. + +

I am fortified in this conclusion by two decisions in this Court in which it has been held where at the date of charterers’ termination there was no available market for a substitute charter of the duration of the unexpired term, owners’ damages were to be assessed by reference to their actual earnings over the whole period, notwithstanding the later revival of an available market: Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd (The Kildare) [2011] 2 Lloyd’s Rep 360; Glory Wealth Shipping Pte v Korea Line Corporation (The Wren) [2011] 2 Lloyd’s Rep 370. Each is an application of the principles I have endeavoured to state.

+ + + + 227. + +

GCL invoked support for its approach from the decision in Petrotrade Inc v Stinnes Handel GmbH [1995] 1 Lloyd’s Rep 142. In that case a seller claimed that a buyer had repudiated a contract for the sale of 10,000 tonnes of gasoline. Colman J held that the buyer had not repudiated the contract and dismissed the claim, but considered obiter what damages would have been recoverable had the buyer been in breach. There was an available market for the seller to resell the goods, but the market could not absorb a single sale of the entire amount immediately; the 10,000 tonnes could have been sold in separate parcels of between 1,000 and 3,000 tonnes over a period of two weeks. Colman J held that this constituted an available market by reference to which the seller’s damages would have fallen to be assessed, and the seller would not have been entitled to recover its actual losses from holding onto the cargo for longer in the belief that it would generate a greater return. I detect nothing in this decision which supports GCL’s case. A market for the sale of goods in separate instalments over a period of two weeks is not materially different in kind from a market for a single sale of the whole, which was the bargain the seller had lost. He could replace his lost bargain by resorting to that market, and his independent decision not to do so broke the chain of causation. By contrast, an owner who loses a long term time charter does not replace his lost bargain by a succession of two or more shorter charters, which are not a like for like replacement.

+ + + + +

Issue 5: What alternative time charter employment was available for the SPAR CAPELLA and SPAR VEGA?

+ + + + 228. + +

This issue is irrelevant in the light of my earlier conclusions. I can state my findings on the evidence briefly. There were very few reported time charter fixtures of supramax vessels throughout the relevant period on which the experts could base a view as to the available market. The expert evidence was primarily addressed to GCL’s contention that a 30 month charter would have been available, followed by a 20 month charter. Although the evidence included reported fixtures at other dates, it may not have been complete over the whole period, and the witnesses did not address all permutations in their evidence. There are certain periods for which I therefore feel unable to make any findings.

+ + + + 229. + +

At the time of termination of the charters in September 2011 there was no available market for an equivalent time charter of a duration in excess of about 18 months. I reject GCL’s case that there was a market for a 30 month charter. It was based on a single fixture reported on 5 September 2011 for a newbuild, which may therefore have been agreed somewhat earlier. It was for only 2 years and was for forward delivery in December 2011. It was the only reported fixture of that length. It is not therefore representative of a market in which Spar could have let the two vessels here being considered.

+ + + + 230. + +

The market rate for an 18 month charter at that date would have been US$13,000 per day.

+ + + + 231. + +

At the end of March 2013, when such a charter would have expired, the longest period for an equivalent time charter for which there was an available market was about 12 months. The market rate for such a charter was US$9,500 per day.

+ + + + 232. + +

At the end of March 2014, when such a charter would have expired, the longest period for an equivalent time charter for which there was an available market was about 6 months. The market rate for such a charter was $13,250 per day.

+ + + + 233. + +

I have no secure evidential basis for a finding of the longest period for an equivalent time charter for which there was an available market at the end of September 2014, save that it was not as long as one year.

+ + + + 234. + +

The market rates for successive one year charters from the date of termination were as follows:

+ + + +

September 2011 US$14,000

+ + + + +

September 2012US$9,500

+ + + + +

September 2013US$10,750

+ + + + +

September 2014(no market for one year charters)

+ + + + + +

Issue 6: What other adjustments fall to be made, if any, to the quantum of Spar’s claim?

+ + + + 235. + +

In relation to the sums due from GCS on the balance of accounts at the date of termination of the charters, Spar’s claim is evidenced by the documentary evidence prepared for the arbitration, which was also before me, and is in the amount which was accepted by the liquidators of GCS in Spar’s proof in the liquidation. GCL contends that these should be reduced by $6,755.16 in respect of a speed and consumption claim for the SPAR CAPELLA and $7,617.32 in respect of a speed and consumption claim for the SPAR DRACO. I find that GCL has failed to discharge the burden which falls on it of establishing the validity of these speed and consumption claims and accordingly Spar’s figures represent the amount due from GCS at the date of termination.

+ + + + 236. + +

In relation to actual earnings to date, Spar had only made calculations up to 31 December 2014. It was agreed that a fresh calculation would need to be made to cover the period up to the date of judgment.

+ + + + 237. + +

As to future earnings between now and December 2015, when the minimum periods of the charters would have expired, a notional daily rate can be applied from figures produced by Clarksons. There were several disputes in relation to this calculation.

+ + + + 238. + +

It was agreed that an allowance should be made for off-hire. Spar’s expert had used actual off hire figures prior to 31.12.14 and then used a figure of 10 days per annum applied pro rata for the future. On behalf of GCL it was contended that 10 days per annum was an appropriate figure for off-hire contingencies, but that it should be applied from start to finish, as per its expert’s calculations; GCL referred in this context to clause 80 of the charters contemplating drydocking during the period of the charters. The approach of Spar’s expert is to be preferred. There is no reason to think that there would have been any drydocking in the remaining unexpired period of the charters so as to make a 10 day pro rata allowance for the remaining period inappropriate. Special Survey is required every five years. The vessels were newbuildings and would not require drydocking for Special Survey until after expiry of the minimum term of the charters, 59 months, which is the period by reference to which damages are to be assessed. The natural time for owners to schedule drydocking for Special Survey would have been following the expiry of the minimum 59 month term of the charters. This conclusion is not affected by the fact that clause 80 of the charters contemplated and made provision for the possibility of drydocking during the course of the charters.

+ + + + 239. + +

In The Kildare David Steel J made an allowance of 1.5% to reflect the contingent risks of future events which would have brought the charter to an end prematurely, such as a total loss of the vessel or bankruptcy of the charterers. No such allowance is appropriate in the present case. So far as the bankruptcy of GCS is concerned, the contingency has arisen: bankruptcy has occurred. But it is not suggested on behalf of GCL that any losses thereafter should be entirely disregarded on the footing that they would have been irrecoverable from GCS, and rightly so because Spar have the benefit of the Guarantees from GCL. So far as the possibility of catastrophic loss between now and December 2015 is concerned, the possibility is sufficiently unlikely as not to warrant any discount on future earnings.

+ + + + 240. + +

The sum awarded in relation to loss of future earnings will fall to be discounted for accelerated receipt. Interest will run on past losses. I will hear the parties further if they are not able to agree the rates applicable in each case, or a more approximate method of giving effect to those principles.

+ + + + +

Issue 7: Do the arbitration costs fall within the scope of liability under the Guarantees?

+ + + + 241. + +

The Guarantees provide:

+ + + + +

“We hereby unconditionally and irrevocably guarantee as primary obligor the full and timely performance by the Charterers of each and every obligation of the Charter Party, and in the event of any one or more defaults in performance by the Charterers, we undertake, on your first written demand to promptly rectify each and every default and hereby accept the responsibility for any liability, losses or damages that you suffer as a result or arising out of such default.”

+ + + + + + + + 242. + +

Because the arbitration proceedings never reached the stage of an award and no costs order was made, GCS did not come under a liability for such costs. Had it done so, failure by GCS to discharge the costs award could properly have been treated as a default in performance of a charterparty obligation (the implied term to honour an award in accordance with the contractually agreed arbitration clause) and so would have fallen within the terms of the Guarantee.

+ + + + 243. + +

In the absence of a costs award, Spar argues that the costs represent loss incurred “as a result or arising out of” the default of GCS comprising the latter’s failure to pay hire and its renunciation of the charters

+ + + + 244. + +

I accept this submission. It was reasonable for Spar to incur the costs of bringing arbitration proceedings against GCS, and such a course was the natural and foreseeable consequence of GCS’s breach. On my findings the claim against GCS would have succeeded. Incurring the costs of pursuing GCS in arbitration was the natural result of GCS’s default and falls within the last part of the Guarantee wording quoted above.

+ + + + 245. + +

GCL argued that such costs would not have been recoverable by Spar from GCS as damages in the absence of a costs award, because the costs of legal proceedings are generally irrecoverable as damages for breach of contract and are only recoverable by the exercise of a costs jurisdiction by the court or tribunal determining the claim. That may be so, but it is not in my view an answer to this element of Spar’s claim. Irrespective of whether such costs would be recoverable from GCS as damages, they were incurred “as a result and arising out of” GCS’s defaults and therefore fall within the scope of that which GCL expressly undertook to pay, to the extent that such costs were reasonably incurred. They are therefore recoverable from GCL subject to that qualification.

+ + + + 246. + +

Whether the amount of costs being claimed is reasonable is not something which it has been possible to investigate at this hearing. It was agreed that in the event they were determined to be recoverable in principle, as I hold them to be, the convenient course is that they should be subject to a detailed assessment in the absence of agreement.

+ + + +

Conclusion

+ + + + + 247. + +

Spar’s claim succeeds and will be quantified in accordance with the principles I have identified.

+ + + + + + From 886ed6f9715da7d86971ec78299444447e9d2179 Mon Sep 17 00:00:00 2001 From: David McKee Date: Fri, 22 Nov 2024 17:58:49 +0000 Subject: [PATCH 05/14] Prototype better XML parsing --- src/replacer/replacer_pipeline.py | 54 +++++++++++++++---- .../replacer_tests/test_make_replacements.py | 19 ++++--- .../replacer_tests/test_replacer_pipeline.py | 20 +++---- src/utils/proper_xml.py | 19 ++++--- src/utils/tests/test_proper_xml.py | 26 ++++++++- 5 files changed, 101 insertions(+), 37 deletions(-) diff --git a/src/replacer/replacer_pipeline.py b/src/replacer/replacer_pipeline.py index ec8b4fa03..a644ac691 100644 --- a/src/replacer/replacer_pipeline.py +++ b/src/replacer/replacer_pipeline.py @@ -6,9 +6,33 @@ import html import re -from utils.proper_xml import create_tag_string +from utils.proper_xml import create_tag_string, replace_string_with_tag from utils.types import Replacement, XMLFragmentAsString +JUNK_REGEX = r"\s*\s*$" +BAD = '="<' + + +def assert_not_bad(s): + if BAD in s: + msg = f"{BAD!r} found in XML" + raise RuntimeError(msg) + + +def _replace_string_with_tag_handling_junk(file_data, string, tag): + """The XML might contain at the end; remove and replace if so.""" + + junk = re.search(JUNK_REGEX, file_data) + if junk: + good = re.sub(JUNK_REGEX, "", file_data) + tail = junk.group() + else: + good = file_data + tail = "" + + new = replace_string_with_tag(good, string, tag) + return new + tail + def fixed_year(year: str) -> str | None: """For some reason, years can be returned as "No Year", despite not being present in the code (outside tests) or the database @@ -40,11 +64,12 @@ def replacer_caselaw(file_data: XMLFragmentAsString, replacement: Replacement) - if year: attribs["uk:year"] = year attribs["uk:origin"] = "TNA" - replacement_string = create_tag_string("ref", html.escape(replacement[0]), attribs) - new = XMLFragmentAsString(str(file_data).replace(replacement[0], replacement_string)) - return new - ### DRAGON: use utils.proper_xml.create_tag_string when creating. But for now, focus on making it not change attributes, only XML running text + replacement_tag = create_tag_string("ref", html.escape(replacement[0]), attribs) + output = _replace_string_with_tag_handling_junk(file_data, replacement[0], replacement_tag) + + assert_not_bad(file_data) + return output def replacer_leg(file_data: XMLFragmentAsString, replacement: Replacement) -> XMLFragmentAsString: @@ -60,8 +85,10 @@ def replacer_leg(file_data: XMLFragmentAsString, replacement: Replacement) -> XM "uk:canonical": replacement[2], "uk:origin": "TNA", } - replacement_string = create_tag_string("ref", html.escape(replacement[0]), attribs) - return XMLFragmentAsString(str(file_data).replace(replacement[0], replacement_string)) + replacement_tag = create_tag_string("ref", html.escape(replacement[0]), attribs) + output = _replace_string_with_tag_handling_junk(file_data, replacement[0], replacement_tag) + assert_not_bad(file_data) + return output def replacer_abbr(file_data: XMLFragmentAsString, replacement: Replacement) -> XMLFragmentAsString: @@ -71,8 +98,11 @@ def replacer_abbr(file_data: XMLFragmentAsString, replacement: Replacement) -> X :param replacement: tuple of citation match and corrected citation :return: enriched XML file data """ - replacement_string = f'{replacement[0]}' - return XMLFragmentAsString(str(file_data).replace(str(replacement[0]), replacement_string)) + replacement_tag = f'{replacement[0]}' + + output = _replace_string_with_tag_handling_junk(file_data, replacement[0], replacement_tag) + assert_not_bad(file_data) + return output def replacer_pipeline( @@ -89,13 +119,19 @@ def replacer_pipeline( :param REPLACEMENTS_ABBR: list of unique tuples of citation match and corrected citation :return: enriched XML file data """ + + assert_not_bad(file_data) + for replacement in list(set(REPLACEMENTS_CASELAW)): file_data = replacer_caselaw(file_data, replacement) + assert_not_bad(file_data) for replacement in list(set(REPLACEMENTS_LEG)): file_data = replacer_leg(file_data, replacement) + assert_not_bad(file_data) for replacement in list(set(REPLACEMENTS_ABBR)): file_data = replacer_abbr(file_data, replacement) + assert_not_bad(file_data) return file_data diff --git a/src/tests/replacer_tests/test_make_replacements.py b/src/tests/replacer_tests/test_make_replacements.py index 0bf101fe4..59cac702a 100644 --- a/src/tests/replacer_tests/test_make_replacements.py +++ b/src/tests/replacer_tests/test_make_replacements.py @@ -14,17 +14,16 @@ class TestMakePostHeaderReplacements: def test_make_failing_post_header_replacements(self): - original_file_content = open(f"{FIXTURE_DIR}/broken.xml", encoding="utf-8").read() - replacement_content = open(f"{FIXTURE_DIR}/broken.txt", encoding="utf-8").read() - - # this fails because we haven't started using ReplaceStringWithTag yet + """This used to fail because the input data contained ref tags with text matching a replacement""" + original_file_content = open(FIXTURE_DIR / "broken.xml", encoding="utf-8").read() + replacement_content = open(FIXTURE_DIR / "broken.txt", encoding="utf-8").read() make_post_header_replacements(original_file_content, replacement_content) def test_make_post_header_replacements(self): - original_file_content = open(f"{FIXTURE_DIR}/ewhc-ch-2023-257_original.xml", encoding="utf-8").read() - replacement_content = open(f"{FIXTURE_DIR}/ewhc-ch-2023-257_replacements.txt", encoding="utf-8").read() + original_file_content = open(FIXTURE_DIR / "ewhc-ch-2023-257_original.xml", encoding="utf-8").read() + replacement_content = open(FIXTURE_DIR / "ewhc-ch-2023-257_replacements.txt", encoding="utf-8").read() expected_file_content = open( - f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1.xml", + FIXTURE_DIR / "ewhc-ch-2023-257_enriched_stage_1.xml", encoding="utf-8", ).read() @@ -33,12 +32,12 @@ def test_make_post_header_replacements(self): def test_post_header_works_if_already_enriched(self): original_file_content = open( - f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1.xml", + FIXTURE_DIR / "ewhc-ch-2023-257_enriched_stage_1.xml", encoding="utf-8", ).read() - replacement_content = open(f"{FIXTURE_DIR}/ewhc-ch-2023-257_replacements.txt", encoding="utf-8").read() + replacement_content = open(FIXTURE_DIR / "ewhc-ch-2023-257_replacements.txt", encoding="utf-8").read() expected_file_content = open( - f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1.xml", + FIXTURE_DIR / "ewhc-ch-2023-257_enriched_stage_1.xml", encoding="utf-8", ).read() diff --git a/src/tests/replacer_tests/test_replacer_pipeline.py b/src/tests/replacer_tests/test_replacer_pipeline.py index 6b4ecb77f..05153fd64 100644 --- a/src/tests/replacer_tests/test_replacer_pipeline.py +++ b/src/tests/replacer_tests/test_replacer_pipeline.py @@ -19,7 +19,7 @@ def test_citation_replacer_1(self): year = "2025" URI = "#" is_neutral = "true" - text = "In the judgment the incorrect citation is [2025] 1 All E.R. 123." + text = "In the judgment the incorrect citation is [2025] 1 All E.R. 123." replacement_entry = (citation_match, corrected_citation, year, URI, is_neutral) replaced_entry = replacer_caselaw(text, replacement_entry) assert corrected_citation in replaced_entry @@ -32,7 +32,7 @@ def test_citation_replacer_2(self): year = "2022" URI = "#" is_neutral = "true" - text = "This citation that needs to be changed is [2022] UKET 789123_2012 which discussed..." + text = "This citation that needs to be changed is [2022] UKET 789123_2012 which discussed..." replacement_entry = (citation_match, corrected_citation, year, URI, is_neutral) replaced_entry = replacer_caselaw(text, replacement_entry) assert corrected_citation in replaced_entry @@ -44,7 +44,7 @@ def test_citation_replacer_3_no_year(self): citation_match = "LR 1 A&E 123" corrected_citation = "LR 1 AE 123" year = "No Year" - text = "LR 1 A&E 123 refers to..." + text = "LR 1 A&E 123 refers to..." URI = "#" is_neutral = "true" replacement_entry = (citation_match, corrected_citation, year, URI, is_neutral) @@ -59,7 +59,7 @@ def test_citation_replacer_4(self): year = "2022" URI = "#" is_neutral = "true" - text = "I defer to the judgment in (2022) EWHC 123 (Mercantile)." + text = "I defer to the judgment in (2022) EWHC 123 (Mercantile)." replacement_entry = (citation_match, corrected_citation, year, URI, is_neutral) replaced_entry = replacer_caselaw(text, replacement_entry) assert corrected_citation in replaced_entry @@ -72,7 +72,7 @@ def test_citation_replacer_5(self): year = "2022" URI = "#" is_neutral = "true" - text = "[2022] ewca civ 123." + text = "[2022] ewca civ 123." replacement_entry = (citation_match, corrected_citation, year, URI, is_neutral) replaced_entry = replacer_caselaw(text, replacement_entry) assert corrected_citation in replaced_entry @@ -88,7 +88,7 @@ class TestLegislationReplacer(unittest.TestCase): def test_citation_replacer_1(self): legislation_match = "Adoption and Children Act 2002" # matched legislation href = "http://www.legislation.gov.uk/ukpga/2002/38" - text = "In their skeleton argument in support of the first ground, Mr Goodwin and Mr Redmond remind the court that the welfare checklist in s.1(4) of the Adoption and Children Act 2002 requires the court, inter alia" + text = "In their skeleton argument in support of the first ground, Mr Goodwin and Mr Redmond remind the court that the welfare checklist in s.1(4) of the Adoption and Children Act 2002 requires the court, inter alia" canonical = "foo" replacement_entry = (legislation_match, href, canonical) replaced_entry = replacer_leg(text, replacement_entry) @@ -99,7 +99,7 @@ def test_citation_replacer_1(self): def test_citation_replacer_2(self): legislation_match = "Children and Families Act 2014" # matched legislation href = "http://www.legislation.gov.uk/ukpga/2014/6/enacted" - text = "In her first judgment on 31 January, the judge correctly directed herself as to the law, reminding herself that any application for expert evidence in children’s proceedings is governed by s.13 of the Children and Families Act 2014." + text = "In her first judgment on 31 January, the judge correctly directed herself as to the law, reminding herself that any application for expert evidence in children’s proceedings is governed by s.13 of the Children and Families Act 2014." canonical = "bar" replacement_entry = (legislation_match, href, canonical) replaced_entry = replacer_leg(text, replacement_entry) @@ -110,7 +110,7 @@ def test_citation_replacer_2(self): def test_citation_replacer_2_no_enacted(self): legislation_match = "Children and Families Act 2014" # matched legislation href = "http://www.legislation.gov.uk/ukpga/2014/6" - text = "In her first judgment on 31 January, the judge correctly directed herself as to the law, reminding herself that any application for expert evidence in children’s proceedings is governed by s.13 of the Children and Families Act 2014." + text = "In her first judgment on 31 January, the judge correctly directed herself as to the law, reminding herself that any application for expert evidence in children’s proceedings is governed by s.13 of the Children and Families Act 2014." canonical = "bar" replacement_entry = (legislation_match, href, canonical) replaced_entry = replacer_leg(text, replacement_entry) @@ -131,10 +131,10 @@ def test_replacer_abbr(self): with the matching string enclosed by an tag with the replacement string as the title attribute and TNA as the uk:origin attribute """ - text = "This game requires 12 GB of Random Access Memory" + text = "This game requires 12 GB of Random Access Memory" replacement_entry = ("Random Access Memory", "RAM") - expected = 'This game requires 12 GB of Random Access Memory' + expected = 'This game requires 12 GB of Random Access Memory' assert replacer_abbr(text, replacement_entry) == expected diff --git a/src/utils/proper_xml.py b/src/utils/proper_xml.py index fd07f1ce3..9d2ab5e24 100644 --- a/src/utils/proper_xml.py +++ b/src/utils/proper_xml.py @@ -1,12 +1,17 @@ +from xml.sax.saxutils import escape as xml_escape + import lxml.etree +from utils.types import XMLFragmentAsString + namespaces = { None: "http://docs.oasis-open.org/legaldocml/ns/akn/3.0", "uk": "https://caselaw.nationalarchives.gov.uk/akn", } XSLT_TEMPLATE = """ - + @@ -31,16 +36,18 @@ """ -def replace_string_with_tag(xml: bytes, string: str, tag: str) -> bytes: +def replace_string_with_tag(xml: XMLFragmentAsString, string: str, tag: str) -> XMLFragmentAsString: """ Replace citations in running text, but not in XML attributes This is probably quite inefficient, being called once per replacement! But we can make it better later """ root = lxml.etree.fromstring(xml) - stylesheet = lxml.etree.XML(XSLT_TEMPLATE.format(replaced_string=string, replacement_tag=tag)) + # DRAGON: this currently isn't working but stops it crashing + sanitised_string = xml_escape(string, entities={"'": "&apos;", '"': "&quot;"}) + stylesheet = lxml.etree.XML(XSLT_TEMPLATE.format(replaced_string=sanitised_string, replacement_tag=tag)) transformer = lxml.etree.XSLT(stylesheet) - output = transformer(root) - return lxml.etree.tostring(output) + output = lxml.etree.tostring(transformer(root)) + return output.decode("utf-8") def expand_namespace(namespaced_name: str) -> str: @@ -65,5 +72,5 @@ def create_tag(tag: str, contents: str = "", attrs: dict[str, str] | None = None return root -def create_tag_string(tag: str, contents: str = "", attrs: dict[str, str] | None = None) -> str: +def create_tag_string(tag: str, contents: str = "", attrs: dict[str, str] | None = None) -> XMLFragmentAsString: return lxml.etree.tostring(create_tag(tag=tag, contents=contents, attrs=attrs)).decode("utf-8") diff --git a/src/utils/tests/test_proper_xml.py b/src/utils/tests/test_proper_xml.py index c79a332c9..d2d33e3c1 100644 --- a/src/utils/tests/test_proper_xml.py +++ b/src/utils/tests/test_proper_xml.py @@ -11,6 +11,28 @@ def test_as_text(self): b'

In blah ...

', ) + @pytest.mark.xfail + def test_as_text_quotes(self): + """The quotes in Lloyd's fouls it up; investigate why later""" + assert_equal_xml( + replace_string_with_tag( + "

In [2013] 2 Lloyd's Rep 69 ...

", + "[2013] 2 Lloyd's Rep 69", + "blah", + ), + b'

In blah ...

', + ) + + def test_as_text_quotes_no_crash(self): + """At least check that quotes don't crash the enrichment process""" + ( + replace_string_with_tag( + "

In [2013] 2 Lloyd's Rep 69 ...

", + "[2013] 2 Lloyd's Rep 69", + "blah", + ), + ) + def test_as_text_multi(self): assert_equal_xml( replace_string_with_tag( @@ -23,10 +45,10 @@ def test_as_text_multi(self): @pytest.mark.xfail def test_as_text_multi_in_tag(self): - """Ideally, this should have - in the output; we could rerun until it runs clean""" + """Ideally, this should have - in the output, instead of just doing the first; we could rerun until it runs clean""" assert_equal_xml( replace_string_with_tag("

[2024] UKSC 1 - [2024] UKSC 1

", "[2024] UKSC 1", ""), - b"

- [2024] UKSC 1

", + b"

-

", ) def test_as_attribute(self): From b10f6a5283eaeee617fc1b185855de66ad8a2994 Mon Sep 17 00:00:00 2001 From: David McKee Date: Mon, 25 Nov 2024 12:51:00 +0000 Subject: [PATCH 06/14] Change expected output file to agree --- .../ewhc-ch-2023-257_enriched_stage_1.xml | 1939 +--------------- ...-ch-2023-257_enriched_stage_1_ORIGINAL.xml | 1984 +++++++++++++++++ ...etermine_and_replace_oblique_references.py | 2 +- .../test_oblique_references.py | 2 +- .../test_second_stage_replacer.py | 2 +- 5 files changed, 1989 insertions(+), 1940 deletions(-) create mode 100644 src/tests/fixtures/ewhc-ch-2023-257_enriched_stage_1_ORIGINAL.xml diff --git a/src/tests/fixtures/ewhc-ch-2023-257_enriched_stage_1.xml b/src/tests/fixtures/ewhc-ch-2023-257_enriched_stage_1.xml index 7bc38588b..8bc2a3d8e 100644 --- a/src/tests/fixtures/ewhc-ch-2023-257_enriched_stage_1.xml +++ b/src/tests/fixtures/ewhc-ch-2023-257_enriched_stage_1.xml @@ -1,55 +1,5 @@ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -EWHC-Chancery-PropertyTrustsProbate -2023 -257 -[2023] EWHC 257 (Ch) -0.12.7 -4e0236c837e6b38a42581eeb9d7ba059e9e39c629fe40bc1bba598f41d86b96d - - - +EWHC-Chancery-PropertyTrustsProbate2023257[2023] EWHC 257 (Ch)0.12.74e0236c837e6b38a42581eeb9d7ba059e9e39c629fe40bc1bba598f41d86b96d #judgment { font-family: 'Times New Roman'; font-size: 12pt; } #judgment .Normal { font-size: 12pt; } #judgment .Heading1 { font-weight: bold; font-family: Arial; font-size: 16pt; } @@ -96,1889 +46,4 @@ #judgment .FootnoteReference { vertical-align: super; } #judgment .TableGrid { } #judgment .TableGrid td { border: 0.5pt solid; } - - - -
-

-

Neutral Citation Number: [2023] EWHC 257 (Ch)

-

Case No: PT-2021-001060

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IN THE HIGH COURT OF JUSTICE

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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

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PROPERTY, TRUSTS AND PROBATE LIST (ChD)

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Rolls Building,

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7 Rolls Building, Fetter Lane
London EC4A 1NL

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Date: 13/02/2023

-

Before :

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HH JUDGE DAVIS-WHITE KC

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(SITTING AS A JUDGE OF THE CHANCERY DIVISION)

-

- - - - - - - - - - - - - - - - - - - - -

-

Between :

- - - - - - - - - - - - - - - - -
-

-

 -

DEVON AND SOMERSET FIRE AND RESCUE AUTHORITY (in its capacity as trustee of part of the Firefighters Pension Scheme under SI 1992/129 Firemen's Pension Scheme Order)

-		 -

-

-

-

Claimant

-
-

-

 -

- and -

-		 -

-

-

-

 - -(1) -

LEE HOWELL

- - -(2) -

THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS

- -		 -

-

-

Defendants

-
-

- - - - - - - - - - - - - - - - - - - - -

-

- - - - - - - - - - - - - - - - - - - - -

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Ms Harriet Brown (instructed by Plymouth City Council Legal Services) for the Claimant

-

Mr Simon Oakes (instructed by HMRC Solicitor’s Office & Legal Services) for the Second Defendant

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The First Defendant did not appear and was not represented

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Hearing dates: 23 (Reading), 24-26 January 2023

-

- - - - - - - - - - - - - - - - - - - - -

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Approved Judgment

-

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

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.............................

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HH JUDGE DAVIS-WHITE KC (SITTING AS A JUDGE OF THE CHANCERY DIVISION)

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This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30am on 13 February 2023/

- - - - - - - -
-If this Transcript is to be reported or published, there is a requirement to ensure that no reporting restriction will be breached. This is particularly important in relation to any case involving a sexual offence, where the victim is guaranteed lifetime anonymity (Sexual Offences (Amendment) Act 1992), or where an order has been made in relation to a young person -
-

This Transcript is Crown Copyright.  It may not be reproduced in whole or in part other than in accordance with relevant licence or with the express consent of the Authority.  All rights are reserved.

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-
- - - - -

HH Judge Davis-White KC :

- - - -1. - -

The trial before me of the Part 8 claim form in this matter concerns a short point of statutory construction. Put broadly, it is whether one of the conditions for transitional tax relief under the Finance Act 2004 applies in the circumstances of this case to a pension that the First Defendant would like to take under the pension scheme that applies to him.

- - - -2. - -

The Claimant is the Devon and Somerset Fire and Rescue Authority (the “Claimant” or the “Fire Authority”). It is a body corporate established by The Devon and Somerset Fire and Rescue Authority (Combination Scheme) Order 2006 (SI/No 2790 of 2006).

- - - -3. - -

The Fire Authority is also a relevant “fire and rescue authority” for the purposes of the Firemen’s Pension Scheme Order 1992 (SI No. 129 of 1992) (the “FPSO”). The FPSO, in broad terms, sets up a pension scheme for the benefit of (among others) “fire fighters, their spouses and civil partners and dependents” (see FPSO, Schedule 2, rule A3(1)) (the “Scheme”). The Scheme is set out in Schedule 2 to FPSO. For the remainder of this judgment, I refer to the relevant rules of the Scheme by reference to FPSO without necessarily identifying the schedule of FPSO. The Fire Authority has various responsibilities, duties and discretions under the Rules in FPSO.

- - - -4. - -

Although described before me and in the heading to the court documents as “trustee” there is a dispute between the parties as to whether the Fire Authority is a trustee of the Scheme in the true sense of that term. On the limited material before me and submissions made to me, there is a real question as to whether the Fire Authority actually holds any trust property (rather than making records in its books of account as to sums received and sums expended in relation to the Scheme). As I go on to explain, that is but one dispute among a number that I do not consider that I need to resolve for the purposes of determining the real matter in issue between the parties.

- - - -5. - -

The Fire Authority was represented before me by Ms Harriet Brown.

- - - -6. - -

The Fire Authority employs the First Defendant, Mr Lee Howell. He is currently the Chief Fire Officer of the Authority. It is accepted that the Scheme applies to him. The question before me concerns the application of relevant transitional provisions of the Finance Act 2004 to his pension rights under his employment contract and the terms of FPSO. The question of transitional provisions arises because the Finance Act 2004 raised the age at which pensions could be taken on retirement without losing certain favourable tax conditions.

- - - -7. - -

Mr Howell was present in court to observe the hearing before me but was not represented and did not formally take part in the hearing.

- - - -8. - -

The Second Defendant, the Commissioners for His Majesty’s Revenue, were represented by Mr Simon Oakes. For convenience I refer to them in this judgment as “HMRC”.

- - - -9. - -

I am grateful to Ms Brown and Mr Oakes for their helpful submissions, both oral and written. Ms Brown provided two skeleton arguments and a written note. Mr Oakes also provided two skeleton arguments.

- - - - -

The issue

- - - -10. - -

Before turning to the specific facts relating to Mr Howell’s position, it is necessary to explain the relevant terms of the Finance Act 2004 and the relevant terms of FPSO.

- - - -11. - -

The Finance Act 2004 (“FA 2004”) had the effect of simplifying the favourable tax regime applicable to pensions. A number of separate tax regimes for different types of scheme were brought within the umbrella of one type of scheme, the “registered” pension scheme. In particular, under the FA 2004 “registered” pension schemes are subject to a favourable tax regime. The FA 2004 also incorporates the concept of the normal minimum pension age (NMPA), which is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge, unless they are retiring due to ill-health. The NMPA took effect in April 2006. It was increased from age 50 to age 55 with effect from 2010. It will increase to age 57 (for most persons) on 6 April 2028. The increase to age 57 will not apply to members of the various firefighters, police and armed forces public service pension schemes (commonly referred to as uniformed services pension schemes). Each increase has sought to protect certain rights accrued before the date from which the minimum age increases.

- - - -12. - -

The question in this case is whether in April 2006, Mr Howell had relevant rights which are protected under the transitional provisions contained in Schedule FA 2004. If his rights are protected then payment of his pension may be made to him without suffering tax charges. If they are not protected then a number of tax charges may arise if he receives pension payments before the age of 55.

- - - - -

Relevant provisions of the Finance Act 2004

- - - -13. - -

The starting point is that under section 160 FA 2004, the only payments which a registered pension scheme is authorised to make to, or in respect of a member of the scheme, are those specified in section 164 FA 2004. In the extracts from the FA 2004 that I set out in this judgment, I have indicated amendments made by square brackets. I am satisfied that the changes made do not affect or assist in the exercise of statutory interpretation that I have to carry out.

- - - -14. - -

Sections 160(1) and (2) FA 2004 (as amended) provide:-

- - -“160 - -

Payments by registered pension schemes

- - -(1) - -

The only payments which a registered pension scheme is authorised to make to or in respect of a [person who is or has been a] member of the pension scheme are those specified in section 164.

- - - - -(2) - -

In this Part “unauthorised member payment” means—

- - - -

(a) a payment by a registered pension scheme to or in respect of a [person who is or has been a] member of the pension scheme which is not authorised by section 164, and

- - - - -

(b) anything which is to be treated as an unauthorised payment to or in respect of a [person who is or has been a] member of the pension scheme under [this Part].”

- - - - - -15. - -

Section 164(1) FA 2004 (as amended) provides:

- - - -

““164 Authorised member payments

- - - - -

[(1)]The only payments a registered pension scheme is authorised to make to or in respect of a [person who is or has been a] member of the pension scheme are—

- - - -

(a) pensions permitted by the pension rules or the pension death benefit rules [to be paid to or in respect of a member] (see sections 165 and 167),

- - - - -

(b) lump sums permitted by the lump sum rule or the lump sum death benefit rule [to be paid to or in respect of a member] (see sections 166 and 168),

- - - - - -

(c) recognised transfers (see section 169),

- - - - -

(d) scheme administration member payments (see section 171),

- - - - -

(e) payments pursuant to a pension sharing order or provision, and

- - - -

(f) payments of a description prescribed by regulations made by the Board of Inland Revenue.”

- - - - - -16. - -

As I have said, the FA 2004, raised the minimum normal pension age from 50 to 55. Section 165 FA 2004 provides a number of “pension rules”. As regards this case, the first pension rule is the relevant one. In this respect, section 165 FA 2004 provides:

- - -“165 - -

Pension rules

- - -(1) - -

These are the rules relating to the payment of pensions by a registered pension scheme to a member of the pension scheme (“the pension rules”).

- - - - -

Pension rule 1

- - - -

No payment of pension may be made before the day on which the member reaches normal minimum pension age, unless the ill-health condition was met immediately before the member became entitled to a pension under the pension scheme.”

- - - - - - -17. - -

Normal minimum pension age is defined by section 279(1)) FA 2004 as follows:

- - -“279 - -

Other definitions

- - -(1) - -

In this Part—

- - - - -

[“normal minimum pension age” means—

- - - -

(a) in relation to, and to a member of, a pension scheme that is not a uniformed services pension scheme—

- - - - -

(i) before 6 April 2010, 50,

- - - - -

(ii) on and after that date but before 6 April 2028, 55, and

- - - - -

(iii) on and after 6 April 2028, 57, and

- - - -

(b) in relation to, and to a member of, a uniformed services pension scheme—

- - - - - -

(i)before 6 April 2010, 50, and

- - - - -

(ii)on and after that date, 55,]

- - - - -

[(4) In this section “uniformed services pension scheme” means a pension scheme that—

- - - -

(a) is established by or under an enactment or Royal Warrant for the benefit of persons described in subsection (5) (whether or not other persons may be members of such a scheme), or

- - - - -

(b) is established solely for the receipt of additional voluntary contributions from members of a scheme falling within paragraph (a),

- - - - - -

subject to any regulations made under subsection (6).

- - - - -(5) - -

Those persons are persons who are or were—

- - - -

(a) members of the naval, military or air forces of the Crown (including members of any reserve force);

- - - - -

(b) members of a police force other than the Civil Nuclear Constabulary;

- - - - -

(c) firefighters.”

- - - - - - -18. - -

In the event that a pension payment is made that is not “authorised”, then unfavourable tax consequences follow. Under section 208 FA 2004 an unauthorised payments charge, being a charge to income tax of 40% on the payment falling on the recipient of the payment, will arise. Under sections 209-210 FA 2004, an unauthorised payments surcharge of 15% may arise, chargeable to the recipient of the relevant payment. The surcharge arises on a calculated basis depending on the proportion that the unauthorised payments made within a specified period bear to the member’s “crystallised” and “uncrystallised” rights (in each case valued according to a methodology set out in the FA 2004). Finally, under sections 239 and following sections a scheme sanction charge, being a charge to income tax, may fall on the scheme administrator where in any tax year one or more scheme chargeable payments are made by a registered scheme. There are other potential consequences of making unauthorised payments under section 242 FA 2004.

- - - -19. - -

As I shall go on to explain, Mr Howell now wishes to take his pension under FPSO before the age of 55. The Claimant is not prepared to pay such a pension if it is “unauthorised” such that payment would raise the reality or possibility of the unfavourable tax consequences of such an unauthorised payment. The question is therefore whether the transitional provisions set out in Schedule 36 apply so as to prevent this consequence.

- - - -20. - -

Section 160(9) FA 2004 refers in terms to transitional provisions being contained in Schedule 36 parts 3 and 4. Section 283 FA 2004 also provides that Schedule 36 contains various transitional and savings provisions.

- - - -21. - -

Schedule 36 to the FA 2004, Part 3 deals with the position of “Pre-commencement benefit rights”. Paragraph 21 provides (among other things) that if paragraph 21 applies in relation to a registered pension scheme and a member of the pension scheme, then save in respect of two provisions, the relevant part of the 2004 Act containing the provisions that I have dealt with, has effect as if references to “normal minimum pension age” were references to “the member’s protected pension age”. Where the relevant conditions spelled out in paragraph 21 apply, then the member’s protected pension age is the age from which the member had “an actual or prospective right to any benefit under the protected pension scheme on 5 April 2006, or, where condition B is met, under the original pension scheme on that date” (see paragraph 22(8)). However the paragraph does not operate so as to give the member a protected pension age of more than 50 at any time before 6 April 2010 (see paragraph 22(9)).

- - - -22. - -

The pension sought to be taken by Mr Howell in this case is one that he seeks payment of before he attains the age of 55. For convenience I refer to this as an “early pension”, meaning a pension taken before what would be the normal minimum pension age, for him, of 55 years.

- - - -23. - -

As will be seen, paragraph 22 will apply where a pension scheme is a “protected pension scheme” and “the retirement condition is met in relation to the member and the pension scheme” (paragraph 22(1).

- - - -24. - -

To be a “protected pension scheme”, conditions A or B have to be met (paragraph 22(2)). Condition B does not apply in this case. It relates to block transfers between pension schemes. Condition A requires two conditions to be met. The first is that the pension scheme falls within any of the categories of pension scheme which became registered pension schemes on 6 April 2006 as set out in paragraph 1(1) of the Schedule. That condition is met here. The second condition is that “the entitlement condition” is met in relation to the member and the pension scheme (paragraph 22(3)). The “entitlement condition” contains three elements: (a) on 5 April 2006, the member must have had an “actual or prospective right under the pension scheme to any benefit from an age of less than 55” ; (b) the rules of the pension scheme on 10 December 2003, must have included provision conferring such a right on some or all of the persons who were then members of the scheme and (c) such a right must then have been conferred on the member or would have been if he or she had been a member of the scheme on that date. It is condition (a) of the entitlement condition which arises in this case and where there is a dispute as to whether it does or does not apply. Elements (b) and (c) of the entitlement condition are met in this case.

- - - -25. - -

As regards the “retirement condition”, there is a dispute as to whether I should make any determination as to the construction of the relevant paragraphs or their effect in the current factual situation. Two conditions apply. First the member must become entitled to all the benefits payable to him (or her) under arrangements under the scheme (to which he did not have actual entitlement on or before 5 April 2006) on the same date. Secondly, in a case where on 5 April 2006 the member had an actual or prospective right under the pension scheme to any benefit from an age of less than 50, condition 1 must be met or, in any other case, condition 2 or 3 must be met. Conditions 1 to 3 relate to requirements that the member is not employed by certain types of employer after he or she becomes entitled to all the relevant benefits and that the becoming entitled to the benefits must not be a part of an arrangement the main, or one of the main purposes, is to avoid tax or national insurance contributions.

- - - -26. - -

Paragraph 22 of Schedule 36 provides as follows. I have put in bold the main provision which was in issue before me:

- - -“22(1) - -

This paragraph applies in relation to a registered pension scheme and a member of the pension scheme if—

- - - - -

(a) the pension scheme is a protected pension scheme, and

- - - -

(b) the retirement condition is met in relation to the member and the pension scheme.

- - - - -(2) - -

A pension scheme is a protected pension scheme if condition A or condition B is met.

- - - -(3) - -

Condition A is met if—

- - - -

(a) the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and

- - - - -

(b) the entitlement condition is met in relation to the member and the pension scheme.

- - - -(4) - -

The entitlement condition is met in relation to the member and the pension scheme if—

- - - -

(a) on 5th April 2006 the member had an actual or prospective right under the pension scheme to [any benefit] from an age of less than 55,

- - - - -

(b) the rules of the pension scheme on 10th December 2003 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and

- - - - -

(c) such a right either was then conferred on the member or would have been had the member been a member of the scheme on that date.

- - - - -(5) - -

Condition B is met if the member is a member of the pension scheme [(“a transferee pension scheme”) as a result of—

- - - -

(a) a block transfer from the pension scheme (“the original pension scheme”) in relation to which condition A is met to the transferee pension scheme, or

- - - - -

(b) a block transfer to the transferee pension scheme from a pension scheme that was a transferee pension scheme in relation to the original pension scheme by virtue of the previous application of paragraph (a) or the previous application (on one or more occasions) of this paragraph.]

- - - - - -(6) - -

A transfer is a block transfer if….

- - - - -

[(6A) A transfer is also a block transfer if…

- - -(7) - -

The retirement condition is met in relation to the member and the pension scheme if—

- - - -

(a) the member becomes entitled to all the [benefits] payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date, and

- - - - -

[(b) in a case where on 5th April 2006 the member had an actual or prospective right under the pension scheme to any benefit from an age of less than 50, Condition 1 is met or, in any other case, Condition 2 or 3 is met.]

- - - - - - -

[(7A) Condition 1 is met if—

- - - -

(a) the member is not, after becoming entitled to the benefits mentioned in sub-paragraph (7)(a), employed by a person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected, and

- - - - -

(b) the member's becoming entitled to those benefits is not part of an arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

- - - - - -

(7B) Condition 2 is met if—

- - - -

(a) the member is not, after becoming entitled to the benefits mentioned in sub- paragraph (7)(a), employed by a person specified in sub-paragraph (7C), and

- - - - -

(b) the member's becoming entitled to those benefits is not part of an arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

- - - - - -

(7C) The persons referred to in sub-paragraph (7B)(a) are—

- - - -

(a) any person who was a sponsoring employer in relation to the pension scheme at any time during the period of six months ending with the day on which the member became entitled to the benefits mentioned in sub-paragraph (7)(a) and by whom the member was employed at any time during that period,

- - - - -

(b) any person who is connected with any such person, or

- - - -

(c) any person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected.

- - - - - -

(7D) If the member has become entitled to the benefits payable under arrangements under the pension scheme by reason of service in the armed forces of the Crown, any employment on compulsory recall is to be disregarded for the purposes of sub-paragraph (7B)(a).

- - - - - -

(7E) Condition 3 is met if —

- - - -

(a) paragraph (a) of sub-paragraph (7B) is not satisfied but one of the re-employment conditions is met, and

- - - - -

(b) paragraph (b) of that sub-paragraph is satisfied.

- - - - - -

(7F) The re-employment conditions are—

- - - -

(a) that the member is not employed as mentioned in sub-paragraph (7B)(a) during the period of six months beginning with the day on which the member becomes entitled to the benefits mentioned in sub-paragraph (7)(a), and

- - - - -

(b) that the member is not employed as mentioned in sub-paragraph (7B)(a) during the period of one month beginning with that day, but is so employed during the period of five months beginning at the end of that period, and either the pension abatement condition or the materially different employment condition is met [, and

- - - - -

(c) that the member is or was employed as mentioned in sub-paragraph (7B)(a) where—

- - - -

(i) the employment began at any time during the coronavirus period, and

- - - - -

(ii) the only or main reason that the member was taken into employment was to help the employer to respond to the public health, social, economic or other effects of coronavirus.]

- - - - - - -

(7G) The pension abatement condition is met if—

- - - -

(a) the pension scheme is a public service pension scheme, and

- - - -

(b) the member's benefits under the scheme consist of or include a scheme pension which is liable to reduction by abatement while the member is employed as mentioned in sub-paragraph (7B)(a) and is under the age of 55.

- - - - - - -

(7H) The materially different employment condition is met—

- - - -

(a) in a case where the member is employed as mentioned in sub-paragraph (7B)(a) in more than one employment during the period of five months mentioned in sub-paragraph (7F)(b), if each of those employments, and

- - - - -

(b) otherwise, if the employment in which the member is so employed during that period, is materially different in nature from the employment in which the member was employed immediately before becoming entitled to the benefits mentioned in sub-paragraph (7)(a).

- - - - -

(7I) For the purposes of sub-paragraph (7D) “employment on compulsory recall” means permanent service—

- - - - -

(a) under Part 4 of the Reserve Forces Act 1996,

- - - - -

(b) under Part 5 of that Act,

- - - - -

(c) under a call-out or recall order made under that Act,

- - - -

(d) having been called out or recalled under the Reserve Forces Act 1980, or

- - - - - -

(e) because of any other call-out or recall obligation of an officer.

- - - - -

(7J) [Section 1122 of the Corporation Tax Act 2010] (connected persons) applies for the purposes of this paragraph.]

- - - - - -

[(7K) In sub-paragraph (7F)(c)—

- - - -

“coronavirus” has the same meaning as in the Coronavirus Act 2020 (see section 1(1) of that Act);

- - - - -

“the coronavirus period” means the period beginning with 1 March 2020 and ending with 1 November 2020.

- - - - -

(7L) The Treasury may by regulations amend the definition of “the coronavirus period” in sub-paragraph (7K) so as to replace the later of the dates specified in it with another date falling before 6 April 2021.

- - - - -

(7M) The power in sub-paragraph (7L) may be exercised on more than one occasion.]

- - - -(8) - -

The member’s protected pension age is the age from which the member had an actual or prospective right to [any benefit] under the protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).

- - - -(9) - -

But this paragraph does not have effect so as to give the member a protected pension age of more than 50 at any time before 6th April 2010.”

- - - - - - -

Relevant Provisions of Firemen’s Pension Scheme Order 1992

- - - -27. - -

The immediately relevant provisions of FPSO -

Applicable in England. There are now different provisions of the SI applying to each of England, Scotland and Wales.

- that I was referred to as applying to Mr Howell are those of the pension scheme itself as set out in Schedule 2 to the statutory instrument. They were A3 (dealing with the persons to whom the Scheme applies), A13 (setting out the normal pension age of 55) and B1 setting out an entitlement to take an ordinary pension at the age of 50 (calculated in accordance with Part 1 of Schedule 2) in certain cases of long service. That entitlement will not apply in certain circumstances whose existence can only be determined in connection with or at or shortly before actual retirement. For present purposes, the key condition is that the entitlement to a pension at the age of 50 will not apply to a Chief Fire Officer, if the Chief Fire Officer retires before the age of 55, unless notice of retirement was given with the permission of the fire and rescue authority.

- - - -28. - -

The short issue is whether or not any such entitlement of the CFO prior to notice of retirement being given is, as Ms Brown submits, an “actual” or “prospective” right to such benefit within the meaning of paragraph 22 of Schedule 36 FA 2004 or, as Mr Oakes submits, neither an “actual” nor a “prospective” right because it is dependent on a third party giving a relevant consent or permission before the right to a pension can come into being, such consent/permission being that of the claimant to the relevant notice of retirement being given. In what follows, the extracts from FPSO are those in force as at 5 April 2006.

- - - -29. - -

The issue is whether or not relevant rights were held by Mr Howell as at 6 April 2006 and therefore the version of the statutory instrument that applied at that time to Mr Howell. In what follows I have used the version said to ave been in force by Westlaw which also shows, by square brackets amendments from the SI as originally enacted.

- - - -30. - -

A3 of Schedule 2 to FPOS provided:

- - - -

“A3 Exclusive application to regular firefighters

- - - -

(1)    Subject to [paragraphs (3) and (4)] , this Scheme applies in relation to regular firefighters and their spouses [ or civil partners] and dependants to the exclusion of pension provision under any enactment other than section 26 of the principal Act and the Social Security Act 1975.

- - - -(2) - -

In paragraph (1) “pension provision” means any provision for the payment of a pension, allowance or gratuity, on cessation of employment or on death, in respect of employment as a regular firefighter.

- - - -(3) - -

A person who is not [an employee of a fire and rescue authority] but whose employment is, under rule A4 or A5, treated for the purposes of this Scheme as employment as a regular firefighter is not a regular firefighter for the purposes of this rule.

- - - - -

[ (4) Nothing in this rule prevents provision being made by this Scheme in respect of pension credit members. ] A13 of Schedule 2 to FPOS provides:

- - - - - -31. - -

A13 of Schedule 2 to FPOS provided:

- - - -

“[A13. Normal pension age

- - - - -

The normal pension age of employees of a fire and rescue authority appointed on terms under which they are or may be required to engage in fire-fighting is 55.]”

- - - - -32. - -

B1 of Schedule 2 to FPOS provided:

- - - -

“B1.— Ordinary pension

- - -(1) - -

Subject to paragraph (2), this rule applies to a regular firefighter who retires if he then—

- - - - -

(a) has attained the age of 50, and

- - - -

(b) is entitled to reckon at least 25 years' pensionable service, and (c) does not become entitled to an ill-health award under rule B3.

- - - - -(2) - -

This rule does not apply—

- - - -

(a) to a person whose notice of retirement states that he is retiring for the purpose of [taking up employment with another fire and rescue authority], or

- - - - -

(b) unless his notice of retirement was given with the permission of the [fire and rescue authority], to a [chief fire officer]…. who retires before attaining the age of 55, or

- - - - -

(c) where immediately before the person's retirement an election under rule G3 not to pay pension contributions had effect.

- - - - -(3) - -

A person to whom this rule applies becomes entitled on retiring to an ordinary pension calculated in accordance with Part I of Schedule 2.”

- - - - - - -

The Facts

- - - -33. - -

Unfortunately, the parties were unable to agree, as directed, a statement of facts and issues. Somewhat unusually, the parties rather than awaiting or seeking a relevant court order, decided that they would adopt the route of having “particulars of claim” and a defence (rather than, if ordered by the court, points of claim and points of defence) in these part 8 proceedings. The status of these statements of case is somewhat uncertain. Written witness evidence was served and HMRC agreed that there should be no cross-examination nor any disclosure. In its defence, HMRC in large point put the claimant to proof of the facts as pleaded. In reaching trial, HMRC sought to maintain the position that certain of the facts were not proved but that HMRC was prepared to accept the facts for the purposes of the hearing before me only.

- - - -34. - -

In my judgment, HMRC’s initial stance regarding the facts was misguided. This was the trial of the Part 8 claim. There was written evidence filed. If not contested then the facts set out in that witness evidence would be facts that the court would be able to, and would be likely to, find. Once those facts were found they would bind HMRC and the other parties, not just for the hearing but thereafter.

- - - -35. - -

I understood Mr Oakes ultimately to accept:-

- - -(1) - -

that in the material respects set out below, there was uncontested evidence before me justifying the findings of fact which I set out below.

- - - -(2) - -

that in reality HMRC were contesting the construction put upon the FA 2004 relied upon by the Claimant and/or some of the asserted facts put forward by Ms Brown without any supporting evidence.

- - - - -36. - -

However, Ms Brown was also not prepared to agree certain facts that HMRC wished to rely upon. Again, when tested, Ms Brown ultimately accepted (as I understood it) that the relevant facts set out below were either agreed or that it was open to me on the evidence to make findings of fact regarding the same and that her client ultimately did not dispute the same.

- - - -37. - -

The key facts that I find as applying in this case are therefore as follows. They are in part taken from a draft statement of facts that the parties were unable to agree and in part from the evidence before me, most pertinently, a witness statement of Mr Michael Pearson (“Mr Pearson”) dated 18 November 2021. Mr Pearson has been employed by the Fire Authority since 2007 and is currently its Director of Governance and Digital Services. He is also the Clerk to the Authority and the Monitoring Officer.

- - - -38. - -

The Scheme is a registered pension scheme and a public service pension scheme under the FA 2004, section 150(2) and 150(3) respectively.

- - - -39. - -

Firefighters employed by local authorities are eligible to join the Scheme.

- - - -40. - -

Mr Howell is a chief fire officer within the meaning of paragraph B1 FPSO, with more than 25 years of pensionable service. He was appointed as a firefighter with Essex Fire and Rescue Service on 1 September 1988. He secured the rank of Chief Fire Officer with Suffolk Fire & Rescue Service on 1 December 2004. Mr Howell commenced in employment with the Claimant as chief fire officer on 10 January 2009. This was part way through the period of 25 years of pensionable service. He reached 25 years of pensionable service on 1 September 2013.

- - - -41. - -

According to an Opinion of Ms Felicity Cullen KC (at the time QC) dated 18 March 2010 (Ms Cullen’s Opinion) (and I find), Mr Howell’s contract of employment with the claimant (subject to the letter referred to below): “contains the following terms covering retirement and pension provision:

- - - -

"9. Retirement

- - - -

Nominal Pension Age for members of the Firefighters' Pension Scheme is 55 with protection of certain benefits for those formerly with a compulsory retirement age of 60. For the New Firefighters' Pension Scheme the Normal Retirement Age is also 60. You are required to retire in accordance with the regulations of your pension scheme and no later than the day before your 65th birthday.

- - - - -10. - -

Pension Scheme

- - - -

The Firefighters' Pension Scheme and the New Firefighters' Pension Scheme are administered on behalf of DSFRS by Devon Pensions Services. If you are a member of either of these pension schemes then you will be able to transfer your membership to the Service. The Firefighters' Pension Scheme and the New Firefighters' Pension Scheme are contracted out of the State Second Pension Scheme (S2P) which used to be called the State Earnings Related Pension Scheme. Further details on the scheme can be found on the DCLG website.”

- - - - - -42. - -

Doubts having arisen as to how the transitional provisions under the FA 2004 that I have outlined operated, the matter was submitted to Ms Cullen KC for her opinion. The relevant background was described by her as follows:

- - -“3. - -

The CFO is concerned about the potential effect of changes in pensions tax legislation with effect from 6 April 2010 and has asked DSFRS to consider including within the Contract a clause permitting him to retire at age 50 in 2019.

- - - -4. - -

DSFRS is willing to consider this request but is concerned at the possibility of becoming subject to scheme sanction charges under the provisions of Part 4 FA 2004. I have been asked to advise on the potential liabilities to scheme sanction charges which may arise as a result of changes to the Contract. It has been specifically agreed that my advice will be limited to the relevant tax points and I am not required to consider the contractual and possible employment law issues raised in my letter of instruction.”

- - - - -43. - -

The main part of her opinion is a discussion as to whether the rights under FPSO paragraph B1 are rights which are “actual or prospective” within the meaning of paragraph 22(4)(a), Schedule 36 FA 2004. Her conclusion was as follows:

- - - -

“In conclusion, it is my view that, on a proper construction of para.22 Schedule 36 FA 2004, the CFO is, in principle, entitled to benefit from a protected pension age of 50. The retirement condition (or any further requirements resulting from any changes in law) will have to be satisfied at the appropriate time if protection is to be available in fact. HMRC's Manuals indicate, however, that it may well take a different view to my own and this cannot, as a matter of practice be ignored.”

- - - - -44. - -

The position of HMRC, as identified by Ms Cullen, reflects their position before me in this case. As she set out:

- - -“21. - -

The key issue in relation to the condition in para.22(4)(a) Schedule 36 FA 2004 is whether a right which is, on its face, qualified in the sense that it is conditional on "permission" (the term used in Rule B1.(2) of the FPS), can be construed as being an actual or prospective right. HMRC thinks not: in its Manuals at RPSM 03106020, in describing the protected pension age requirements relating to rights to take benefits under age 55, it states that "the rights must be unqualified (in that no other party need consent to the individual's right before it becomes binding on the scheme or contract holder)." It is my view that a requirement for permission and a requirement for consent (the term used in RPSM 03106020) are indistinguishable for these purposes. Reference should also be made to RPSM 03106025.*

- - - - -

* In RPSM 03106025 HMRC states as follows:

- - - -

"Some rules give members an unqualified right to take benefits but only when certain conditions are met. If an individual meets the conditions providing the unqualified right to take benefits before age 55 they will have a protected pension age."

- - - - -

An example is then given relating to redundancy, but it may be possible to infer that a consent condition can become unqualified by the giving of consent or permission.”

- - - - - -45. - -

In paragraph 17 of the Defence, HMRC’s position is stated shortly:

- - - -

“17…..

- - -(a) - -

It is admitted that paragraph 22 of FA 2004, Schedule 36, Part 3 requires an ‘actual or prospective right’;

- - - -(b) - -

However, as to paragraphs 3.11.1, 3.11.2 and 3.11.4, it is denied that the 1st Defendant had, at the relevant time, an actual or prospective right: any entitlement to an early retirement pension was entirely dependent upon a 3rd party (the fire and rescue authority) giving, in the future, consent to early retirement (via the mechanism of an early retirement notice) – which consent might, or might not, be given;”

- - - - - -46. - -

Before me, Ms Brown also referred to PTM062210 which goes on to explain what HMRC means by an unqualified right:

- - - -

“To have a protected pension age the member must have had the right to take benefits before normal minimum pension age. That is not the ability to take benefits, but an unqualified right.

- - - - -

An individual has an unqualified right to take benefits if they do not need the consent of anybody before they can take their benefits. If the scheme documentation states that the consent of the trustees or employer is required to take benefits the member does not have an unqualified right to take benefits.

- - - - -

(It does not matter that the trustees have always operated their discretion to allow the payment of early benefits, the right is still not an unqualified right.)

- - - - -

For example, on 10 December 2003 a scheme may give its members an unqualified right to take pension benefits before age 55, but only if they are active members. Deferred members may take benefits before age 55 but only with the consent of the trustees or the employer. The active members as at 5 April 2006 who were also active members on 10 December 2003 or who joined the scheme after that date therefore have a protected pension age but the deferred members do not. On or after 6 April 2006, the employer decides that it will close its defined benefits section in the scheme and instead in future will provide benefits on a defined contributions basis in a new section of the existing scheme. As a result, those members who were active members of the defined benefits section on 5 April 2006 become deferred members of that section and active members of the defined contributions section (with a reserved right, qualified or unqualified) to take benefits before age 55. However, these members still retain their protected pension age as this is unaffected by any changes in scheme rules made from 6 April 2006 onwards. So, they are still able to take their benefits before age 55 after 2010 provided that consent to taking the deferred benefits (and their defined contribution section benefits if the right to them is qualified) is given and that they become entitled to all their scheme benefits under both the defined benefits and defined contributions sections on the same date

- - - - -

(Emphasis added by Ms Brown).

- - - - -47. - -

Following receipt of Ms Cullen’s opinion, by letter dated 31 March 2010, the Claimant proposed an amendment of Mr Howell’s contract of employment, which he accepted on or about 16 April 2010. Having cited the provision regarding retirement that I have set out earlier, the claimant’s letter went on to say:

- - - -

“In accordance with the Firefighters’ Pension Scheme 1992, the Devon & Somerset Fire & Rescue Authority have given permission for you to submit notice of your intention to retire from age 50 subject to the following:

- - -1. - -

You being entitled at that time to reckon at least 25 years’ pensionable service; AND

- - - -2. - -

Subject to your not becoming entitled to an ill-health award under Rule B3 of the Scheme; AND

- - - -3. - -

Your notice of retirement not indicating that you intend to retire for the purpose of taking up employment with another fire and rescue service; AND

- - - -4. - -

Any pensions benefit payable before the age of 55 not representing an unauthorised payment as defined in the Finance Act 2004.”

- - - - - -48. - -

Two points can be made about this letter. First, the permission to submit a notice of intention to retire from age 50 was dependent on any pensions benefit payable before the age of 55 not representing an unauthorised payment. Secondly, if HMRC are correct on their construction of the relevant transitional provisions of schedule 36 FA 2004 as applied to the Scheme, this letter was too late to remove the need for any consent so as to make any right to an early pension (payable prior to the age of 55) not subject to consent or permission of any third party. On HMRC’s case, the condition would have to have been met back on 5 April 2006.

- - - -49. - -

The claimant is willing to make payments by way of pension to Mr Howell, prior to him reaching 55 but provided that such payments do not amount to unauthorised payments as defined by the provisions of the FA 2004 that I have set out earlier in this judgment.

- - - - -

The issues

- - - -50. - -

Unfortunately the parties were also unable to agree a formulation of the issues that the court was being asked to decide.

- - -(a) - -

The key issue: paragraph 22(4)(a) sch 36 FA 2004: the entitlement condition: “actual or prospective right to benefits from an age of less than 55 as at 5 April 2006”

- - - - -51. - -

The parties were agreed that the key issue was the application of the transitional provisions under Schedule 36 FA 2004 to the situation concerning Mr Howell and in particular the issue of whether or not within the meaning of paragraph 22 of Schedule 36 as at 5 April 2006 he had an “actual” or “prospective” right to benefits under the Scheme from an age of less than 55. The precise formulation of any appropriate declaration remained in issue. The issue as to formulation of the declaration was one that I considered should properly be considered after my judgment on the key issue.

- - - -52. - -

I should add that a great deal of the written skeleton arguments was taken up with the issue of whether the court could or should make a declaration and if so on what jurisdictional basis. Some of this related to other relief apparently being sought by the Claimant, as I shall refer to later in this judgment. As regards declaratory relief in relation to the “entitlement condition” Ms Brown submitted that such relief should be granted to her as a trustee seeking directions. Mr Oakes submitted that Ms Brown’s client was not a trustee and therefore that any declaration could only be granted under the court’s general discretionary power and not in the context of its role in relation to trustees. At the end of the day, Mr Oakes (and as I understood it, Ms Brown) accepted that, even under the general jurisdiction of the court, there was both jurisdiction and, as a matter of discretion, it would be appropriate for the court to make a declaration regarding the point of law arising with regard to whether or not, on the facts, Mr Howell fulfils the “entitlement condition” of paragraph 22 of schedule 36, FA 2014. I need not therefore consider the question of the trustee status of the Claimant nor the general law relating to the grant of declaratory relief in that context any further.

- - - -

(b)the “retirement condition” paragraph 22(7) Sch 36 FA 2004

- - - - -53. - -

The second issue that surfaced during the hearing was whether or not the “retirement condition” was met. As I have pointed out, whether the retirement condition is met appears largely to depend upon future events. However, Ms Brown submitted that there were matters that were capable of being determined now. Her submission is that, first, all benefits payable under the Scheme will be payable at the same time, so that paragraph 22(7)(a) of schedule 36 FA 2004 is met. Secondly, she submits that paragraph 22(7)(b) does not apply in the circumstances here. That is because, she says, paragraph 22(7)(b) does not apply at all unless on 5 April 2006 Mr Howell had an actual or prospective right under the Scheme to any benefit from an age of less than 50. If he did then condition 1 has to be met and if it is not then conditions 2 or 3 have to be met.

- - - -54. - -

Mr Oakes’ position was that HMRC had not come prepared to deal with this issue. As regards 22(7)(a), HMRC needed more time to consider the Scheme as a whole and the benefits potentially payable under it which might go wider than simply a pension at age 50. As regards paragraph 22(7)(b), he did not agree that as a matter of construction paragraph 7(b) was dealing solely with a situation where the member had, on 5 April 2006, an actual or prospective right to any benefit from an age of less than 50. Rather, if that was the case then condition 1 had to be met. If that was not the case (ie there was no such entitlement), then conditions 2 and condition 3 came into play and one at least had to be satisfied. The words “in any other case” were a reference to any other case than where on 5 April 2006 the member had the relevant right, not a reference to a case where, in such circumstances, condition one was not met. I note that Ms Cullen KC’s opinion seems to proceed on the basis put forward by Mr Oakes.

- - - -55. - -

Ms Brown referred me to the particulars of claim and the defence. She said that the statements of case prevent HMRC from now raising a contrary case that the “retirement condition” is, or may, not be met. True it is that the particulars of claim assert, for example in paragraphs 3.7 and 3.8, that the “only point of concern” was whether paragraph 22(4) of schedule 36 FA 2004 applies and that the Claimant’s position was that the “other conditions” (that is of paragraph 22) are met. Further, the Defence simply “noted” these paragraphs. Nevertheless I am not satisfied that the Second Defendant is prevented from raising the issue. The hearing before me concentrated almost entirely upon the paragraph 22(4) point and the “entitlement” position. I heard very limited argument indeed on the retirement condition under paragraph 22(7), most of it directed to whether HMRC were prevented from denying the assertion that the condition was met. The hearing as it was overran its time estimate by a substantial margin. I do not consider that I should deal with the retirement condition issue without it being clearly formulated and relevant evidence and proper full submissions being made. If it is necessary to allow HMRC to amend their statement of case I would allow them to do so but I do not consider that it is. I would not be prepared to make any declaration in the particular circumstances based upon some form of pleading point that HMRC are not permitted to raise any counter arguments.

- - - -56. - -

I will hear from counsel on hand down of this judgment whether these proceedings should be left alive to deal with the retirement condition on another day or whether the matter can be left to be dealt with (if it arises) in separate proceedings (subject to any Henderson v Henderson point).

- - - -

(c)The trustee’s discretion: directions as to action to be taken

- - - - -57. - -

As is clear to me from the statements of case and the draft list of issues, the key question before me was whether as a matter of law the “entitlement condition” was met (and more narrowly whether the first element of that condition was met). However, in her skeleton argument for the hearing, Mr Brown commenced by saying that the Claimant had applied for an order that it is able to and should make a payment to Mr Howell prior to his attaining the age of 55 (emphasis supplied). In fact directions as to what the claimant “should” do (and in particular whether it should make a payment even if it did amount to an unauthorised payment) had never been raised before. In her supplemental skeleton, Ms Brown suggested that the Claimant was seeking declaratory relief as to whether it would be within its powers to make a payment to Mr Howell before he attains the age of 55 without making provision for unauthorised payments. This again seemed to be relief relating to the scope of the Claimant’s powers and how it should exercise them.

- - - -58. - -

As I understood it Ms Brown ultimately accepted that she was not seeking the directions of or declarations by the court as to what the Claimant should do (which would involve consideration of a lot more evidence than that which was before me and might involve the need for joinder of other persons to the extent that for example, the making of an unauthorised payment might have an effect upon the relevant Scheme). The Claimant really needs to know what the legal position in relation to the entitlement condition in the case of Mr Howell and will then have to consider what course it is appropriate for it to take. Its current position, as I understand it, is that it is not prepared to make an early payment of pension (ie before Mr Howell attains the age of 55) if that would be an unauthorised payment under FA 2004. I note however that, as I go on to explain later in this judgment, part of Ms Brown’s submissions seemed to be to the effect that the claimant had to make an early relevant payment in any event.

- - - - -

(d) HMRC’s manual(s)

- - - -59. - -

At one point it was, at the least, unclear whether it was being suggested that the court should grant some form of relief in relation to HMRC’s manual(s) which is/are said by the Claimant inaccurately to record the relevant law regarding the meaning and application of the “entitlement condition”. It was clarified that no relevant relief is being sought in this respect and I need say no more about it.

- - - - -

Statutory construction and the meaning of legislation

- - - -60. - -

In my judgment, I have to construe the meaning of the words “actual or prospective right to benefits” in paragraph 22 of Schedule 36 to the FA 2014 and to decide whether or not Mr Howell’s position falls within that provision.

- - - -61. - -

I was referred to a number of cases about statutory construction. I set out a summary of my main conclusions drawn from those authorities.

- - - -62. - -

In conducting statutory interpretation, the courts are “seeking the meaning of the words which Parliament used” and identifying the meaning borne by the words in question in the particular context in which they are used. The Court is not however to engage in a process of finding a meaning which is not justified by the words that Parliament has used, or which is selected for some reason other than the presumed intention of Parliament, such as the personal view of the judge (R(PRCBC) v Home Secretary [2022] UKSC 3 at [29], [59], [66]; Black-Clawson International Ltd v Papierwerke Waldhof-Aschffenburg AG [1975] AC 591, 613 Per Lord Reid; R v Secretary of State for the Environment Transport and the Regions, Ex P Spath Holme Ltd [2001] AC 349, 396).

- - - -63. - -

Statutory interpretation involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey using the statutory words which are being considered. This means that, for example, the subjective intentions of the draftsman, the promoter, or individual members or even a majority of members are all irrelevant. Parliament’s “intention” in this context is the intention reasonably imputed to Parliament in respect of the language used (R(PRCBC) v Home Secretary at [31], [59]; Ex p Spath Holme Ltd at 396-7).

- - - -64. - -

However, an expressed intention of a Government Minister may become relevant to ascertaining the objective intention of Parliament under the rule in Pepper v Hart.

- - - -65. - -

Part of the context will be the statutory context, that is the section of the relevant piece of legislation as a whole and the wider context of the relevant group of sections. The statute as a whole may provide the relevant context. They are the words Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained (R(PRCBC) v Home Secretary at [29]).

- - - -66. - -

Other external aids may cast light on the meaning of particular statutory provisions. As regards statements made in Parliament, a special rule applies referred to in shorthand as the rule in Pepper v Hart, being named after the case in which the House of Lords relaxed the rule that there could be no reference to such material ([1993] AC 593). I will deal with that rule separately. What follows is dealing with external aids (that is aids external to the statute itself) other than matters covered by the rule in Pepper v Hart.

- - - -67. - -

External aids may cast light on the meaning of particular statutory provisions (for example Explanatory Notes to the legislation); disclose the background to a statute, the mischief it addresses and/or the purpose of the legislation thereby assisting in a purposive interpretation of a particular statutory provision (for example, Law Commission reports, Royal Commission reports, reports of advisory committees and Government White Papers ((R(PRCBC) v Home Secretary at [30]).

- - - -68. - -

Such external aids may also reveal that the language of a statute, initially thought to be clear, is in fact ambiguous. They may then assist the court in ascertaining the true meaning of the statute (R(PRCBC) v Home Secretary at [29], [63], [67], [76]; Fothergill v Monarch Airlines Ltd [1981] AC 251 at 281).

- - - -69. - -

The court is also able to rely upon a body of principles of construction and/or prima facie assumptions or presumptions (R(PRCBC) v Home Secretary at [29], [41], [43] and see discussion of examples of these at [34]-[40]).

- - - -70. - -

The court will usually look at any external material drawn to its attention which properly throws light on the meaning of the words that Parliament has used. That may include language dictionaries and/or legal dictionaries. Further, other case law or other statute which uses similar language may be of assistance in understanding concepts or how meanings have been attributed to words in different contexts. Indeed, at least some legal dictionaries (as will language dictionaries) give examples of the meaning attributed to words and concepts in different contexts.

- - - - -

Pepper v Hart

- - - -71. - -

HMRC seek to support their contention as to the meaning of “actual and prospective” by referring to the statements made by a Government Minister, Ms Ruth Kelly MP, then Financial Secretary to the Treasury in Parliament during the passage of the then Finance Bill and which became FA 2004. These comments were made by her during the consideration of the then Finance Bill by the Standing Committee of the House of Commons, which considered the amendment which became paragraph 22 of Schedule 36 FA 2004.

- - - -72. - -

Such references are not a legitimate aid to statutory interpretation unless the three conditions set out by Lord Brown-Wilkinson in Pepper v Hart [1993] AC 593, 640 are met. Those three conditions are: (1) that the legislative provision must be ambiguous, obscure or, on a conventional interpretation, lead to absurdity; (2) that the material must be or include one or more statements by a minister or other promoter of the Bill; and that (3) the statement must be clear and unequivocal on the point of interpretation which the court is considering, (see R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2022] UKSC 3; [2022] 2 WLR 343, per Lord Hodge DPSC at paragraph [32]).

- - - -73. - -

There was a debate before me as to the meaning of “ambiguity” in this context. Ms Brown submitted that “ambiguous” meant something more than “capable of bearing more than one meaning”. In this respect she focussed upon the passage of the speech of Lord Browne-Wilkinson in Pepper v Hart as set out below (with her emphases):

- - - -

“Statute law consists of the words that Parliament has enacted. It is for the courts to construe those words and it is the court's duty in so doing to give effect to the intention of Parliament in using those words. It is an inescapable fact that, despite all the care taken in passing legislation, some statutory provisions when applied to the circumstances under consideration in any specific case are found to be ambiguous. One of the reasons for such ambiguity is that the members of the legislature in enacting the statutory provision may have been told what result those words are intended to achieve. Faced with a given set of words which are capable of conveying that meaning it is not surprising if the words are accepted as having that meaning. Parliament never intends to enact an ambiguity. Contrast with that the position of the courts. The courts are faced simply with a set of words which are in fact capable of bearing two meanings. The courts are ignorant of the underlying Parliamentary purpose. Unless something in "other parts of the legislation discloses such purpose, the courts are forced to adopt one of the two possible meanings using highly technical rules of construction. In many, I suspect most, cases references to Parliamentary materials will not throw any light on the matter. But in a few cases it may emerge that the very question was considered by Parliament in passing the legislation. Why in such a case should the courts blind themselves to a clear indication of what Parliament intended in using those words? The court cannot attach a meaning to words which they cannot bear, but if the words are capable of bearing more than one meaning why should not Parliament's true intention be enforced rather than thwarted?”

- - - - -74. - -

Ms Brown’s submission was that nowhere does Lord Browne-Wilkinson “explain that ambiguous means capable of bearing more than one meaning”. I have difficulty with that proposition. However, as I ultimately understood her submission, it was to the effect that if (without reference to the relevant Parliamentary statement sought to be adduced into evidence) relevant words used in a statute are words that the court considers to be capable of having more than one meaning (she would say “plausible meaning”) then the words will be “ambiguous” for the purposes of the rule in Pepper v Hart. In this case, she says, the relevant words are not ambiguous. If I am correct in my understanding then I do not consider Ms Brown’s submission to be contentious.

- - - - -

The “entitlement condition”

- - - -75. - -

Ms Brown’s submission is that the meaning of “actual or prospective right” is not ambiguous. She says that, as at 5 April 2006, Mr Howell had either an “actual” or a “prospective” right to benefits. She says that the meaning of “actual” and “prospective” is to be derived from dictionaries and are words of ordinary and wide meaning.

- - - -76. - -

As regards dictionary definitions, Ms Brown relied upon the meanings set out in the Merriam-Webster Dictionary online as follows:

- - -(1) - -

As regards “actual”:

- - - - -

“1a: existing in fact or reality

- - - -

actual events

- - - - -

actual and imagined conditions

- - - - - -

b: not false or apparent

- - - -

actual costs

- - - - - -

c

- - - - -

—used for emphasis

- - - - -

This is the actual room in which my grandfather was born.

- - - - -

2: existing or occurring at the time

- - - - -

caught in the actual commission of a crime”

- - -(2) - -

As regards “prospective”:

- - - -

1: relating to or effective in the future

- - - - -

2a: likely to come about: EXPECTED

- - - - -

the prospective benefits of this law

- - - - -

b: likely to be or become

- - - - -

a prospective mother

- - - - - - -77. - -

The submissions of Ms Brown to some extent developed over time. As I understood it she formally retained her original submission set out in her first written skeleton argument that the rights of Mr Howell under the Scheme were either “actual” and/or “prospective” within the meaning of the entitlement condition. That is on the basis, she submits, that they existed or existed at the relevant time (2006) and/or they were effective in the future. Further, the rights could be both “real” (i.e. actual) and prospective.

- - - -78. - -

In oral submission, she made clear that she did not push the case that the rights were “actual” very strongly and that she primarily asserted that the rights were prospective. That is because, although conditional, the rights to a pension were either “effective in the future” and/or “likely to come about”. Further, she submitted that it was either not clear that the Claimant would be in a position to refuse permission to an early retirement notice or even that it had no choice in the matter and that therefore the entitlement to an early pension was “likely”, if not inevitable, to come about.

- - - -79. - -

She also submitted that on the true construction of the Scheme and rule B1, Mr Howell had an actual right to a pension prior to age 55 which was only defeasible by a condition subsequent (e.g. if permission of the Claimant to the retirement notice at the relevant time was not forthcoming).

- - - -80. - -

Mr Oakes submitted that the relevant words of the entitlement condition required to be construed against the background of a consideration of:

- - -(1) - -

the purpose of the legislation and the use of similar concepts in other relevant legislation. In particular, an “actual” right corresponds to an existing entitlement (usually denoting a pension in payment) and “prospective right” corresponds to an “accrued right” (denoting a current right to future payment but, in either event not a right which is conditional upon third party consent;

- - - -(2) - -

the explanatory notes to what was the Finance Bill 2004 (the “Explanatory Notes”);

- - - -(3) - -

A statement to the relevant standing committee made by the then Financial Secretary to the Treasury, Ms Ruth Kelly MP.

- - - - -81. - -

The particular passage relied on as regards the Explanatory Notes is as follows:

- - - -

“Paragraphs 20-22 protect the rights of two groups to take a pension at an age below 55 after 2010. The first group, dealt with in paragraph 21, has rights to retire at ages between 50 and 55 conferred or created by their employer in the context of an employment relationship via the occupational pension scheme. This right must be capable of being exercised by the employee or ex-employee unilaterally save only for the happening of any relevant contingency. Thus a right subject to any qualification such as “subject to trustee consent” would not be protected.”

- - - - -82. - -

Paragraph 21 of what was then schedule 34 of the Finance Bill 2004 contained slightly different wording to that which eventually emerged in the Finance Act 2004 schedule 36. However, the general drift of the paragraph was entirely in line with the eventual form of paragraph 22 of Sch 36 FA 2004. Further, the “entitlement condition” in paragraph 21(2)(a) of the Bill mirrored that in paragraph 22 of schedule 36 FA 2014 in referring to the member having on 5 April 2006, an “actual or prospective right under the pension scheme to a pension from an age of less than 55”.

- - - -83. - -

As regards the passage from Hansard, the context was the movement of government amendments nos. 521 to 524 to the Finance Bill 2004 during the course of the consideration of the Finance Bill 2004 by Standing Committee A on 22 June 2004. Those amendments related to what became paragraph 22 of schedule 36 to the FA 2004. Amendment 523 was as follows:

- - - -

“schedule 34, page 475, leave out lines 1 to 8 and insert

- - - -

'(a) on 5th April 2006 the member had an actual or prospective right under the pension scheme to a pension from an age of less than 55,

- - - - -

(b) the rules of the pension scheme on 10th December 2003 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and

- - - - -

(c) such a right either was then conferred on the member or would have been had the member been a member of the scheme on that date.'.[Ruth Kelly.]”

- - - - - -84. - -

Amendment 523 was duly made in due course.

- - - -85. - -

The provision that amendment 523 replaced in the Bill was the definition of the “entitlement condition”. Schedule 34, page 456 of the Bill at the bottom of the page started with the then draft entitlement condition which was: “22(2). The entitlement condition is-”. Lines 1 to 8 as replaced on page 475 of the Bill was to the following effect:

- - - -

(a) in the case of a relevant statutory scheme as defined in section 611A of ICTA or a pension scheme treated by the Inland Revenue as if it were such a relevant statutory scheme, on 5th April 2006 the member had an actual or prospective right under the pension scheme to a pension from an age of less than 55, or

- - - - -

(b) in any other case, the member had such a right under the pension scheme throughout the period beginning with 10th December 2003 and ending with 5th April 2006.”

- - - - -86. - -

Speaking to the various amendments, the Financial Secretary to the Treasury said the following:

- - - -

“Ruth Kelly: Pensions receive favourable tax treatment to encourage people to save for retirement. The deal between the Government and the pension saver is that that favourable tax treatment is conditional on using most of the savings built up in that way to generate retirement income, and not for other purposes. As part of the reform of tax rules for pensions, we intend to set the minimum age at which tax-privileged pensions can be drawn at 55 from 2010. That minimum benefit age will apply to all pensions that qualify for tax relief. Moving the minimum benefit age to 55 is not designed to prevent people from stopping work when they are younger than 55, if they can afford to do so using resources other than pensions, but they will not be able to use pensions built up with tax relief until the age of 55.

- - - - -

It would, of course, be unfair to introduce such a change in a way that cut across people's contractual rights to take an occupational pension at an earlier age. People with such rights may well have planned for their future on that basis, or even taken redundancy from their employer in the expectation that their occupational pension would become payable before they reached the age of 55. Because of that, provisions in the schedule protect the rights of employees in occupational pension schemes to retire before 55, provided certain conditions are met: first, that the right was in place before 10 December 2003 and, secondly, that the right is an absolute right and not subject to any conditions such as the consent of the employer.

- - - - -

Amendments Nos. 520 to 522 are tidying-up amendments that correct and clarify references to minimum pension age. Following representations on theDecember 2003 consultation document, we are now proposing a relaxation of the original proposals.

- - - - -

Amendments Nos. 523 and 524 would extend the protection to individuals who join their occupational pension scheme after 10 December 2003 but before 6 April 2006 A-day. They will be able to retire at the scheme's minimum pension age or normal retirement age provided that on 10 December 2003 the occupational pension scheme offered such a date to all existing members.”

- - - - -87. - -

As regards the rights that Mr Howell had under the Scheme as at April 2006, Mr Oakes submits that Mr Howell did not then have an actual or prospective right to a pension. The right would only come into being once permission of the Claimant was given.

- - - -88. - -

Ms Brown made a number of points regarding the reliance of Mr Oakes on other statutory provisions and their interpretation by the courts, the reliance on the Explanatory Notes and the reliance on Hansard. I do not set them all out here but they included (at various stages) that there was no need to construe the relevant provisions of the FA 2004 which was clear and unambiguous, there was therefore no need to look at the Explanatory Notes and no ability to look at Hansard and the relevant statement of Ms Kelly MP, the statements in the Explanatory Notes and of Ms Kelly MP were themselves unclear and required to be construed and could not be relied upon in the exercise that I had to undertake and that other statutory provisions used other language and concepts and were therefore either not to be looked at or, having been looked at, provided no assistance. Finally, the provisions of rule B1 of Schedule 2 FPOS, did not fall within the description given by the Explanatory Notes or Ms Kelly MP as to the matters excluded from “actual or prospective rights”.

- - - -89. - -

First of all, it seems to me that Ms Brown is wrong to say that the meaning of the relevant constituent elements of the entitlement condition can be determined simply by looking at a dictionary of the English language. I will come onto the meaning of “actual” separately but, leaving that aside, the “likelihood” of something happening, for the prospective test, is an uncertain test. One of the dictionary examples is a “prospective mother” but one can see that in some contexts that might be limited to a pregnant female whereas in others it might extend to a female who is hoping and planning to become pregnant. Clearly as at 2006 a firefighter who was, say 38 years old, might be said have a prospective right to a pension at some age, even that were contingent on the firefighter achieving the relevant pensionable age under the relevant scheme. Further, as well as what might be said to be naturally occurring contingencies, that right might be conditional on the firefighter not then taking up certain sorts of employment. Such a condition would be within the firefighters’ control. However, the more the contingencies depend not on actions of the firefighter or the occurrence of natural events, the more questionable it becomes as to whether the right is a “prospective” right. Further, if the test is “likelihood” does the answer depend on the factual position in relation to the individual concerned? If they are diagnosed with a condition in 2006 that at the time is likely to lead to death shortly and is incurable, but the firefighter in fact survives, would he not have had a prospective right as at 2006 on the basis that as regards him it was then very unlikely that he would survive to pension age?

- - - -90. - -

Further, it is clear that in other areas of the law, “prospective” may be contrasted with “contingent” (see e.g. debts under the Insolvency Act 1986 and Stonegate Securities Ltd v Gregory [1980] 1 Ch 576 at 579E-F).

- - - -91. - -

In short, it seems to me that the meaning of “actual or prospective right to benefits” is not one that can be answered solely by looking at a dictionary definition. In any event, as I go on to consider, the Explanatory Notes can, in my judgment, be relied upon to identify that there is indeed an ambiguity in the terms in question. I do not consider that the words are not capable of bearing the meaning that the Explanatory Notes give, that is one which excludes a right which is contingent on some third-party consent.

- - - -92. - -

Ms Brown submitted that the court should first consider the meaning of the words and that if they are clear there is “no need to delve into the policy background”. However, that is to ignore the point that the courts have said that Explanatory Notes or background information may in fact identify an ambiguity in the language. Even if I am incorrect that the language is ambiguous, then the Explanatory Notes in this case fulfil exactly that function. I also reject Ms Brown’s submission that Explanatory Notes should not be taken into account, alternatively given no weight, on the basis that they are “technical, difficult to find and difficult to understand” and are not therefore “readily available”. Indeed, I also note that, as Mr Oakes pointed out, the Explanatory Notes were themselves expressly considered by Parliament at various stages of the passage of the Bill (although not the provisions I am dealing with).

- - - -93. - -

I turn to the authorities relied upon by Mr Oakes as, he submits, throwing light upon the transitional provisions in this case and the meaning to be given to “actual or prospective rights” as part of the entitlement condition.

- - - -94. - -

Turning first to “actual right”, Mr Oakes submits that this means a right which existed as at 5 April 2006 in an unqualified form at that time in the sense that at that time there was an unqualified right to receive benefits (i.e. in this case the pension). He submits that as at 5 April 2006 Mr Howell had no immediate unqualified right to a pension: his right to a pension under the Scheme was a right to a pension in the future if and when (among other things) he attained the relevant age.

- - - -95. - -

I accept Mr Oakes’ submissions to the effect that an “actual right” to a benefit in this context is to be equated with the concept of unconditional “entitlement to payment” rather than having any element of prospectivity about it. This is supported, by example, by the Explanatory Notes to what was clause 205 of the Finance Bill 2004 and which is now section 216 of the FA 2004. Section 216 identifies benefit crystallisation events and the amount crystallised in the context of the lifetime allowance charge. It draws a distinction between persons becoming entitled to certain benefits (eg a pension or an annuity) and the individual reaching a certain age when “prospectively entitled” to various benefits. The Explanatory Notes to clause 205 of the Finance Bill 2004 (which became s216 FA 2004) explain:

- - - -

“‘The point at which an individual becomes entitled to the payment of a pension is when the right to receive it becomes actual as opposed to prospective, or in other words, when the pension payments commence”.

- - - - -96. - -

Furthermore, previous pensions legislation has sought to protect rights already granted. Section 67(2) of the Pensions Act 1995, in its original form, prevented exercise of any power conferred on a person to modify an occupational pension scheme:

- - - -

“ on any occasion in a manner which would or might affect any entitlement, or accrued right, of any member of the scheme acquired before the power is exercised […]”

- - - - -97. - -

Section 67(2) as amended makes voidable the exercise of a power in relation to “subsisting rights” defined as being:

- - - -

(a) in relation to a member of an occupational pension scheme, at any time–

- - - -

(i) any right which at that time has accrued to or in respect of him to future benefits under the scheme rules, or

- - - - -

(ii) any entitlement to the present payment of a pension or other benefit which he has at that time, under the scheme rules, […]”

- - - - - -98. - -

This suggests, at the least, the possibility of a distinction in the entitlement condition between an “actual right” (being equivalent to an entitlement) and an prospective right (being equivalent to an “accrued right”).

- - - -99. - -

I was referred to a number of cases construing relevant pension legislation. They included Courage Groups Pension Schemes [1987] 1 All ER 528; AON Trust Corporation v KPMG [2005] EWCA Civ 1004; Danks v Qinetiq [2012] EWHC 570; Barclays Bank v Holmes [2000] BPIR 339; Briggs v Gleeds [2014] EWHC 1178 (Ch) and Entrust Pension v Prospect [2012] EWCH 1666 (Ch). It is notable in the latter case that a “right” to a definable share of surplus was purely discretionary and that this was not therefore a right or entitlement within the relevant meaning of the instrument in question.

- - - -100. - -

I also note that in Alexander Forbes Trustee Services Limited v Clarke [2008] EWHC 153 (Ch), the meaning of “where a person’s entitlement to payment of a pension or other benefit has arisen” was in question. In that context, “entitlement” was found to be capable of extending beyond a pension already in payment to a situation where all the requirements for receipt of pension benefits had already been fulfilled or “lay wholly in the hands” of the relevant member. This appears to be an example where “entitlement" in the particular context went beyond its more narrow meaning where used in contradistinction to “accrued right”. Again, it demonstrates that resort to dictionaries does not yield the entire answer.

- - - -101. - -

Not by way of reliance on the meaning of the words given by her, but by way of illustrating that the relevant words of the entitlement condition in paragraph 22 of Schedule 36 FA 2004 are capable of bearing the meaning attributed to them by Mr Oakes (at least as regards the meaning of “actual right” contrasted with “prospective right”), I note also that Ms Ruth Kelly MP, in the context of became section 216 (the crystallisation clause) in answer to a number of comments by Mr George Osborne MP confirmed that:

- - - -

“the hon. Gentlemen seem to have misunderstood the Bill. The concept of entitlement is clearly defined. It is consistent and it recurs throughout the tax simplification legislation. A benefit crystallisation event is triggered on the individual becoming entitled to a certain benefit. Entitlement has a clear meaning in the legislation, as set out in clause 155. The legislation uses “entitled” to mean the point at which an individual’s right to receive benefits under a pension scheme cease to be prospective and become actual”: Hansard 15 June 2004, Column 578, Clause 205.

- - - - -102. - -

Ms Brown submits that I am not entitled to consider or, if I am, that I gain no assistance from, the case law on different statutory provisions and which use different terminology. I disagree. The concepts are useful and analogous and they demonstrate that the relevant words of the entitlement condition are capable of bearing the meaning given by Mr Oakes.

- - - -103. - -

In my judgment, whatever rights Mr Howell had in 2006 to receive benefits under the Scheme, those rights were not, as at 5 April 2006, “actual” within the meaning of paragraph 22 schedule 36 FA 2004. The real issue is whether they were “prospective rights” and therefore whether or not they do not qualify as such because of the contingency that they depend upon the consent of the claimant being given to the retirement notice as required by rule B1 of the Scheme. Furthermore, the words “prospective right” in the definition of the entitlement condition, are words that, in my judgment, are capable as a matter of language of excluding any entitlement that will only arise if and when a third party exercises a discretion or gives some consent or permission.

- - - -104. - -

In those circumstances, the Explanatory Notes are, in my judgment, clear that the words “actual or prospective” right to benefits excludes the situation where the right will only arise if a third party exercises a discretion or gives consent or permission.

- - - -105. - -

I should also note that, even if I am wrong about the boundary line between “actual and “prospective” rights, the Explanatory Notes make clear that the circumstances where a third party has to give consent/permission before the right arises is one outside the entitlement condition set out in paragraph 22(2)(a) of Schedule 36 FA 2004.

- - - -106. - -

As regards the Explanatory Notes, Ms Brown submits that the notes only refer to “trustee consent” whereas here the issue is employer consent or permission. I am not sure that that is correct. It seems to me that the consent required under FPSO is in fact that of the Claimant as relevant manager of the Scheme. In any event, the Explanatory Note is clear that the key is whether the right can be exercised unilaterally by the employee and of course that is not the case under FPSO (though I revert to that issue later in this judgment).

- - - -107. - -

I also reject the submission that it is necessary to construe the Explanatory Note and that it is difficult in its meaning or unclear. In my judgment the Explanatory Note is perfectly clear and makes sense in the overall policy context of the FA 2004’s relevant transitional provision.

- - - -108. - -

I turn to consider the question of the admissibility and effect of the statement of Ms Ruth Kelly MP to Standing Committee A on the relevant amendment (which was accepted and which became the entitlement condition) as set out in the Hansard extract that I have quoted. It seems to me that that statement in real terms replicates the relevant note in the Explanatory Notes. As such it may add little and it is probably not admissible on the basis that without it the meaning of the relevant entitlement condition is clear, using the Explanatory Notes, without having to resort to Hansard.

- - - -109. - -

Of the statement by Ms Kelly MP, Ms Brown says that the legislation is not ambiguous because resort to the English dictionary shows that it is not ambiguous. I do not agree. I do agree however that the relevant statutory provision is not ambiguous once it is construed against the background of the Explanatory Note.

- - - -110. - -

Strictly therefore I do not consider that the Hansard extract is admissible because I do not consider that there is ambiguity. If I am wrong on that point, I consider that the other pre-conditions of Pepper v Hart are met.

- - - -111. - -

I should note that at one point Ms Brown submitted that the relevant ministerial statement was not admissible because it was made only to a standing committee and not the whole House but of course that was the case in Pepper v Hart itself.

- - - -112. - -

Ms Brown also submitted that the Hansard extract does not expressly discuss the provision in question or the transitional scheme at all. I disagree.

- - - -113. - -

Ms Brown also submitted that the passages relied upon represent the intention of the Minister not the intention of Parliament. I disagree. Inevitably a relevant ministerial statement will express the intention of the Minister (or the Government) as to what words in a Bill are to mean if enacted but if that intention is expressly set out to Parliament and Parliament accepts the relevant wording then the intention of the Minister/Government is adopted by and becomes the intention of Parliament.

- - - -114. - -

Ms Brown also submitted that the statement of Ruth Kelly MP was unclear and contradictory because it cuts across her (Ms Kelly’s) earlier statement that it would be unfair to introduce a change which cuts across people’s rights to take a pension at an earlier age. I disagree with both propositions. In my judgment the statement is clear. Further it does not contradict her earlier statement, rather it explains what amount to rights that cannot be cut across and other “rights” which can be.

- - - -115. - -

Accordingly, my conclusions are:

- - -(1) - -

to be an “actual right to a benefit” within the meaning of paragraph 22 of Schedule 36 FA 2004, the right must be an immediate right to the benefit and subject to no contingencies;

- - - -(2) - -

that where there is no immediate right to a benefit but a contingent future right subject to future contingencies, the right will be a prospective right (subject to (iii));

- - - -(3) - -

future contingences, such as the occurrence of natural events (attaining a certain age) or contingencies wholly within the control of the member (such as not taking certain specified types of employment on retirement (as in rule B1(2)(a)) or not making an election under the Scheme rules, as in B1(2)(c)) are contingencies that are consistent with the right being prospective. However, a condition that requires consent or permission of a third party before there is any right to a pension will be a contingency that will result in there not being a “prospective right to a benefit” within the meaning of FA 2004, schedule 36 paragraph 22.

- - - - - -

FPSO and how FA 2014 applies to it

- - - -116. - -

In my judgment:

- - -(1) - -

Rule B1(3) FPSO confers an entitlement, on retirement, to an ordinary pension calculated in accordance with Part 1 of Schedule 2 on a person “to whom this rule applies”;

- - - -(2) - -

The rule does not apply to a Chief Fire Officer, if he retires before the age of 55, unless his notice of retirement was given with the permission of (in this case, the Claimant);

- - - - -

There is therefore, at most, an entitlement conditional upon permission of a third party. I deal further below with Ms Brown’s submissions as to the nature of the “permission” in question and its effect.

- - - - -117. - -

Further, I accept Mr Oakes’ submission that the natural reading of the rule is that there is no right in a CFO to receive an early pension unless and until permission to give notice of (early) retirement is given. There is no right before such permission and this is not a case where the right is subject to a condition subsequent which will remove an existing right.

- - - -118. - -

I return to the question of permission and consent and how that fits in with the meaning of the 2004 FA with regard to the first element of the entitlement condition.

- - - -119. - -

As I have said, I do not consider that there is anything in the point that the Explanatory Notes give an example of a third party consent (a trustee) and not that of an employer. Further, if there is said to be an ambiguity then the Ruth Kelly MP statement should be allowed in and that does cover employers too.

- - - -120. - -

Ms Brown’s submission is that, even if necessary consent of a third party to the grant of a pension right is outside the protection of the transitional provisions, because it does not meet the meaning of an “actual or prospective” right to a benefit, the requirement of permission within rule B1 of FPSO does not fall foul of this principle.

- - - -121. - -

First, she submits that “permission” is different to “consent” and that in this case “permission” does not operate as a “consent”. She also submits that rule B1 does not have words such as “subject to trustee consent”. I do not accept these submissions. Whether called “permission” or “consent”, in effect the Claimant has to take the further step of agreeing that a retirement notice can be given if the right to an early pension is to be activated. Mr Howell did not as at April 2006 have a right to an early pension dependent only upon his own actions or the happening of natural contingencies (such as attaining the relevant age). He was then dependent on receiving permission (or consent) of the Claimant in the future.

- - - -122. - -

Secondly, she submits that the Claimant, whether as manager of the scheme (or, she would say, trustee) or as employer would not in practice be able to refuse permission, the only right to refuse permission being confined to matters of “timing and form”. As regards inability to refuse consent she submitted that the employer could not realistically refuse permission to give notice of retirement because the contract of service would not be enforceable because specific performance would not be granted (citing cases such as Lumley v Wagner (1843-60) ALL ER Rep 368; C H Giles & Co. Ltd v Norris [1972] 1 ALL ER 960 and Warner Bros v Nelson [1937] 1 KB 209).

- - - -123. - -

As regards the latter point this seems to me to confuse ability to refuse consent to retirement and ability to refuse consent (or permission) to give notice of early retirement which triggers the right to an early pension. I was unclear on what basis Ms Brown said that the right to refuse permission was confined to timing or form and indeed what that meant. She suggested that a notice might be refused where the services of the chief fire officer were required to enable time to arrange a successor but accepted that if refused that could prevent any right to an early pension.

- - - -124. - -

Ms Brown also suggested that there was no ability to refuse permission under rule B1 FPSO because this would amount to a refusal to allow an early pension and amount to constructive dismissal. I accept Mr Oakes’ submission that this submission was not made out on the facts.

- - - -125. - -

Accordingly, I consider that as at 5 April 2006, Mr Howell did not have an actual or prospective right to benefits under the Scheme, in terms of a right to an early pension, within the meaning of the entitlement condition set out in paragraph 22 of schedule 36 FA 2004. This is because although he was within the Scheme, any right he had was contingent upon and did not arise unless and until the Claimant gave its permission for him to serve a relevant (early) notice of retirement for the purposes of the Scheme. The need for such third party consent means that he did not satisfy the entitlement condition as properly construed.

- - - - -

Conclusion

- - - -126. - -

In my judgment, such contingent right as Mr Howell had, as at 5 April 2006, under rule B1 of the FPSO to an early pension, that is one to be received under the age of 55, was not an “actual” or “prospective” right to benefits under paragraph 22 of Schedule 36 FA 2004. Accordingly, the entitlement condition laid out in that paragraph was not met. It follows that any payment to him of a pension under the Scheme under FPSO prior to him reaching the age of 55 will amount to an unauthorised payment under FA 2004.

- - - -127. - -

A draft minute of order having been lodged (which sets out what is agreed, and identifying the non-agreed respective proposals of the parties where there is non-agreement), short skeleton arguments regarding consequential matters should be filed and served by 4pm on Monday 13 February 2023. A remote hearing will be arranged by the court, if necessary at any time after 9:30am hopefully in that week and the parties should approach the court to make appropriate arrangements by 10am Tuesday 14 February 2023.

- - - -128. - -

In the meantime, I also make an order adjourning all consequential matters (including permission to appeal) and extend the time for filing a notice of appeal so that the 21 day period runs from the date that the final order is sealed.

- - - - - - +

Neutral Citation Number: [2023] EWHC 257 (Ch)

Case No: PT-2021-001060

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

PROPERTY, TRUSTS AND PROBATE LIST (ChD)

Rolls Building,

7 Rolls Building, Fetter Lane
London EC4A 1NL

Date: 13/02/2023

Before :

HH JUDGE DAVIS-WHITE KC

(SITTING AS A JUDGE OF THE CHANCERY DIVISION)

- - - - - - - - - - - - - - - - - - - - -

Between :

DEVON AND SOMERSET FIRE AND RESCUE AUTHORITY (in its capacity as trustee of part of the Firefighters Pension Scheme under SI 1992/129 Firemen's Pension Scheme Order)

Claimant

- and -

(1)

LEE HOWELL

(2)

THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS

Defendants

- - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - -

Ms Harriet Brown (instructed by Plymouth City Council Legal Services) for the Claimant

Mr Simon Oakes (instructed by HMRC Solicitor’s Office & Legal Services) for the Second Defendant

The First Defendant did not appear and was not represented

Hearing dates: 23 (Reading), 24-26 January 2023

- - - - - - - - - - - - - - - - - - - - -

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

.............................

HH JUDGE DAVIS-WHITE KC (SITTING AS A JUDGE OF THE CHANCERY DIVISION)

This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30am on 13 February 2023/

If this Transcript is to be reported or published, there is a requirement to ensure that no reporting restriction will be breached. This is particularly important in relation to any case involving a sexual offence, where the victim is guaranteed lifetime anonymity (Sexual Offences (Amendment) Act 1992), or where an order has been made in relation to a young person

This Transcript is Crown Copyright.  It may not be reproduced in whole or in part other than in accordance with relevant licence or with the express consent of the Authority.  All rights are reserved.

HH Judge Davis-White KC :

1.

The trial before me of the Part 8 claim form in this matter concerns a short point of statutory construction. Put broadly, it is whether one of the conditions for transitional tax relief under the Finance Act 2004 applies in the circumstances of this case to a pension that the First Defendant would like to take under the pension scheme that applies to him.

2.

The Claimant is the Devon and Somerset Fire and Rescue Authority (the “Claimant” or the “Fire Authority”). It is a body corporate established by The Devon and Somerset Fire and Rescue Authority (Combination Scheme) Order 2006 (SI/No 2790 of 2006).

3.

The Fire Authority is also a relevant “fire and rescue authority” for the purposes of the Firemen’s Pension Scheme Order 1992 (SI No. 129 of 1992) (the “FPSO”). The FPSO, in broad terms, sets up a pension scheme for the benefit of (among others) “fire fighters, their spouses and civil partners and dependents” (see FPSO, Schedule 2, rule A3(1)) (the “Scheme”). The Scheme is set out in Schedule 2 to FPSO. For the remainder of this judgment, I refer to the relevant rules of the Scheme by reference to FPSO without necessarily identifying the schedule of FPSO. The Fire Authority has various responsibilities, duties and discretions under the Rules in FPSO.

4.

Although described before me and in the heading to the court documents as “trustee” there is a dispute between the parties as to whether the Fire Authority is a trustee of the Scheme in the true sense of that term. On the limited material before me and submissions made to me, there is a real question as to whether the Fire Authority actually holds any trust property (rather than making records in its books of account as to sums received and sums expended in relation to the Scheme). As I go on to explain, that is but one dispute among a number that I do not consider that I need to resolve for the purposes of determining the real matter in issue between the parties.

5.

The Fire Authority was represented before me by Ms Harriet Brown.

6.

The Fire Authority employs the First Defendant, Mr Lee Howell. He is currently the Chief Fire Officer of the Authority. It is accepted that the Scheme applies to him. The question before me concerns the application of relevant transitional provisions of the Finance Act 2004 to his pension rights under his employment contract and the terms of FPSO. The question of transitional provisions arises because the Finance Act 2004 raised the age at which pensions could be taken on retirement without losing certain favourable tax conditions.

7.

Mr Howell was present in court to observe the hearing before me but was not represented and did not formally take part in the hearing.

8.

The Second Defendant, the Commissioners for His Majesty’s Revenue, were represented by Mr Simon Oakes. For convenience I refer to them in this judgment as “HMRC”.

9.

I am grateful to Ms Brown and Mr Oakes for their helpful submissions, both oral and written. Ms Brown provided two skeleton arguments and a written note. Mr Oakes also provided two skeleton arguments.

The issue

10.

Before turning to the specific facts relating to Mr Howell’s position, it is necessary to explain the relevant terms of the Finance Act 2004 and the relevant terms of FPSO.

11.

The Finance Act 2004 (“FA 2004”) had the effect of simplifying the favourable tax regime applicable to pensions. A number of separate tax regimes for different types of scheme were brought within the umbrella of one type of scheme, the “registered” pension scheme. In particular, under the FA 2004 “registered” pension schemes are subject to a favourable tax regime. The FA 2004 also incorporates the concept of the normal minimum pension age (NMPA), which is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge, unless they are retiring due to ill-health. The NMPA took effect in April 2006. It was increased from age 50 to age 55 with effect from 2010. It will increase to age 57 (for most persons) on 6 April 2028. The increase to age 57 will not apply to members of the various firefighters, police and armed forces public service pension schemes (commonly referred to as uniformed services pension schemes). Each increase has sought to protect certain rights accrued before the date from which the minimum age increases.

12.

The question in this case is whether in April 2006, Mr Howell had relevant rights which are protected under the transitional provisions contained in Schedule FA 2004. If his rights are protected then payment of his pension may be made to him without suffering tax charges. If they are not protected then a number of tax charges may arise if he receives pension payments before the age of 55.

Relevant provisions of the Finance Act 2004

13.

The starting point is that under section 160 FA 2004, the only payments which a registered pension scheme is authorised to make to, or in respect of a member of the scheme, are those specified in section 164 FA 2004. In the extracts from the FA 2004 that I set out in this judgment, I have indicated amendments made by square brackets. I am satisfied that the changes made do not affect or assist in the exercise of statutory interpretation that I have to carry out.

14.

Sections 160(1) and (2) FA 2004 (as amended) provide:-

“160

Payments by registered pension schemes

(1)

The only payments which a registered pension scheme is authorised to make to or in respect of a [person who is or has been a] member of the pension scheme are those specified in section 164.

(2)

In this Part “unauthorised member payment” means—

(a) a payment by a registered pension scheme to or in respect of a [person who is or has been a] member of the pension scheme which is not authorised by section 164, and

(b) anything which is to be treated as an unauthorised payment to or in respect of a [person who is or has been a] member of the pension scheme under [this Part].”

15.

Section 164(1) FA 2004 (as amended) provides:

““164 Authorised member payments

[(1)]The only payments a registered pension scheme is authorised to make to or in respect of a [person who is or has been a] member of the pension scheme are—

(a) pensions permitted by the pension rules or the pension death benefit rules [to be paid to or in respect of a member] (see sections 165 and 167),

(b) lump sums permitted by the lump sum rule or the lump sum death benefit rule [to be paid to or in respect of a member] (see sections 166 and 168),

(c) recognised transfers (see section 169),

(d) scheme administration member payments (see section 171),

(e) payments pursuant to a pension sharing order or provision, and

(f) payments of a description prescribed by regulations made by the Board of Inland Revenue.”

16.

As I have said, the FA 2004, raised the minimum normal pension age from 50 to 55. Section 165 FA 2004 provides a number of “pension rules”. As regards this case, the first pension rule is the relevant one. In this respect, section 165 FA 2004 provides:

“165

Pension rules

(1)

These are the rules relating to the payment of pensions by a registered pension scheme to a member of the pension scheme (“the pension rules”).

Pension rule 1

No payment of pension may be made before the day on which the member reaches normal minimum pension age, unless the ill-health condition was met immediately before the member became entitled to a pension under the pension scheme.”

17.

Normal minimum pension age is defined by section 279(1)) FA 2004 as follows:

“279

Other definitions

(1)

In this Part—

[“normal minimum pension age” means—

(a) in relation to, and to a member of, a pension scheme that is not a uniformed services pension scheme—

(i) before 6 April 2010, 50,

(ii) on and after that date but before 6 April 2028, 55, and

(iii) on and after 6 April 2028, 57, and

(b) in relation to, and to a member of, a uniformed services pension scheme—

(i)before 6 April 2010, 50, and

(ii)on and after that date, 55,]

[(4) In this section “uniformed services pension scheme” means a pension scheme that—

(a) is established by or under an enactment or Royal Warrant for the benefit of persons described in subsection (5) (whether or not other persons may be members of such a scheme), or

(b) is established solely for the receipt of additional voluntary contributions from members of a scheme falling within paragraph (a),

subject to any regulations made under subsection (6).

(5)

Those persons are persons who are or were—

(a) members of the naval, military or air forces of the Crown (including members of any reserve force);

(b) members of a police force other than the Civil Nuclear Constabulary;

(c) firefighters.”

18.

In the event that a pension payment is made that is not “authorised”, then unfavourable tax consequences follow. Under section 208 FA 2004 an unauthorised payments charge, being a charge to income tax of 40% on the payment falling on the recipient of the payment, will arise. Under sections 209-210 FA 2004, an unauthorised payments surcharge of 15% may arise, chargeable to the recipient of the relevant payment. The surcharge arises on a calculated basis depending on the proportion that the unauthorised payments made within a specified period bear to the member’s “crystallised” and “uncrystallised” rights (in each case valued according to a methodology set out in the FA 2004). Finally, under sections 239 and following sections a scheme sanction charge, being a charge to income tax, may fall on the scheme administrator where in any tax year one or more scheme chargeable payments are made by a registered scheme. There are other potential consequences of making unauthorised payments under section 242 FA 2004.

19.

As I shall go on to explain, Mr Howell now wishes to take his pension under FPSO before the age of 55. The Claimant is not prepared to pay such a pension if it is “unauthorised” such that payment would raise the reality or possibility of the unfavourable tax consequences of such an unauthorised payment. The question is therefore whether the transitional provisions set out in Schedule 36 apply so as to prevent this consequence.

20.

Section 160(9) FA 2004 refers in terms to transitional provisions being contained in Schedule 36 parts 3 and 4. Section 283 FA 2004 also provides that Schedule 36 contains various transitional and savings provisions.

21.

Schedule 36 to the FA 2004, Part 3 deals with the position of “Pre-commencement benefit rights”. Paragraph 21 provides (among other things) that if paragraph 21 applies in relation to a registered pension scheme and a member of the pension scheme, then save in respect of two provisions, the relevant part of the 2004 Act containing the provisions that I have dealt with, has effect as if references to “normal minimum pension age” were references to “the member’s protected pension age”. Where the relevant conditions spelled out in paragraph 21 apply, then the member’s protected pension age is the age from which the member had “an actual or prospective right to any benefit under the protected pension scheme on 5 April 2006, or, where condition B is met, under the original pension scheme on that date” (see paragraph 22(8)). However the paragraph does not operate so as to give the member a protected pension age of more than 50 at any time before 6 April 2010 (see paragraph 22(9)).

22.

The pension sought to be taken by Mr Howell in this case is one that he seeks payment of before he attains the age of 55. For convenience I refer to this as an “early pension”, meaning a pension taken before what would be the normal minimum pension age, for him, of 55 years.

23.

As will be seen, paragraph 22 will apply where a pension scheme is a “protected pension scheme” and “the retirement condition is met in relation to the member and the pension scheme” (paragraph 22(1).

24.

To be a “protected pension scheme”, conditions A or B have to be met (paragraph 22(2)). Condition B does not apply in this case. It relates to block transfers between pension schemes. Condition A requires two conditions to be met. The first is that the pension scheme falls within any of the categories of pension scheme which became registered pension schemes on 6 April 2006 as set out in paragraph 1(1) of the Schedule. That condition is met here. The second condition is that “the entitlement condition” is met in relation to the member and the pension scheme (paragraph 22(3)). The “entitlement condition” contains three elements: (a) on 5 April 2006, the member must have had an “actual or prospective right under the pension scheme to any benefit from an age of less than 55” ; (b) the rules of the pension scheme on 10 December 2003, must have included provision conferring such a right on some or all of the persons who were then members of the scheme and (c) such a right must then have been conferred on the member or would have been if he or she had been a member of the scheme on that date. It is condition (a) of the entitlement condition which arises in this case and where there is a dispute as to whether it does or does not apply. Elements (b) and (c) of the entitlement condition are met in this case.

25.

As regards the “retirement condition”, there is a dispute as to whether I should make any determination as to the construction of the relevant paragraphs or their effect in the current factual situation. Two conditions apply. First the member must become entitled to all the benefits payable to him (or her) under arrangements under the scheme (to which he did not have actual entitlement on or before 5 April 2006) on the same date. Secondly, in a case where on 5 April 2006 the member had an actual or prospective right under the pension scheme to any benefit from an age of less than 50, condition 1 must be met or, in any other case, condition 2 or 3 must be met. Conditions 1 to 3 relate to requirements that the member is not employed by certain types of employer after he or she becomes entitled to all the relevant benefits and that the becoming entitled to the benefits must not be a part of an arrangement the main, or one of the main purposes, is to avoid tax or national insurance contributions.

26.

Paragraph 22 of Schedule 36 provides as follows. I have put in bold the main provision which was in issue before me:

“22(1)

This paragraph applies in relation to a registered pension scheme and a member of the pension scheme if—

(a) the pension scheme is a protected pension scheme, and

(b) the retirement condition is met in relation to the member and the pension scheme.

(2)

A pension scheme is a protected pension scheme if condition A or condition B is met.

(3)

Condition A is met if—

(a) the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and

(b) the entitlement condition is met in relation to the member and the pension scheme.

(4)

The entitlement condition is met in relation to the member and the pension scheme if—

(a) on 5th April 2006 the member had an actual or prospective right under the pension scheme to [any benefit] from an age of less than 55,

(b) the rules of the pension scheme on 10th December 2003 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and

(c) such a right either was then conferred on the member or would have been had the member been a member of the scheme on that date.

(5)

Condition B is met if the member is a member of the pension scheme [(“a transferee pension scheme”) as a result of—

(a) a block transfer from the pension scheme (“the original pension scheme”) in relation to which condition A is met to the transferee pension scheme, or

(b) a block transfer to the transferee pension scheme from a pension scheme that was a transferee pension scheme in relation to the original pension scheme by virtue of the previous application of paragraph (a) or the previous application (on one or more occasions) of this paragraph.]

(6)

A transfer is a block transfer if….

[(6A) A transfer is also a block transfer if…

(7)

The retirement condition is met in relation to the member and the pension scheme if—

(a) the member becomes entitled to all the [benefits] payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date, and

[(b) in a case where on 5th April 2006 the member had an actual or prospective right under the pension scheme to any benefit from an age of less than 50, Condition 1 is met or, in any other case, Condition 2 or 3 is met.]

[(7A) Condition 1 is met if—

(a) the member is not, after becoming entitled to the benefits mentioned in sub-paragraph (7)(a), employed by a person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected, and

(b) the member's becoming entitled to those benefits is not part of an arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

(7B) Condition 2 is met if—

(a) the member is not, after becoming entitled to the benefits mentioned in sub- paragraph (7)(a), employed by a person specified in sub-paragraph (7C), and

(b) the member's becoming entitled to those benefits is not part of an arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

(7C) The persons referred to in sub-paragraph (7B)(a) are—

(a) any person who was a sponsoring employer in relation to the pension scheme at any time during the period of six months ending with the day on which the member became entitled to the benefits mentioned in sub-paragraph (7)(a) and by whom the member was employed at any time during that period,

(b) any person who is connected with any such person, or

(c) any person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected.

(7D) If the member has become entitled to the benefits payable under arrangements under the pension scheme by reason of service in the armed forces of the Crown, any employment on compulsory recall is to be disregarded for the purposes of sub-paragraph (7B)(a).

(7E) Condition 3 is met if —

(a) paragraph (a) of sub-paragraph (7B) is not satisfied but one of the re-employment conditions is met, and

(b) paragraph (b) of that sub-paragraph is satisfied.

(7F) The re-employment conditions are—

(a) that the member is not employed as mentioned in sub-paragraph (7B)(a) during the period of six months beginning with the day on which the member becomes entitled to the benefits mentioned in sub-paragraph (7)(a), and

(b) that the member is not employed as mentioned in sub-paragraph (7B)(a) during the period of one month beginning with that day, but is so employed during the period of five months beginning at the end of that period, and either the pension abatement condition or the materially different employment condition is met [, and

(c) that the member is or was employed as mentioned in sub-paragraph (7B)(a) where—

(i) the employment began at any time during the coronavirus period, and

(ii) the only or main reason that the member was taken into employment was to help the employer to respond to the public health, social, economic or other effects of coronavirus.]

(7G) The pension abatement condition is met if—

(a) the pension scheme is a public service pension scheme, and

(b) the member's benefits under the scheme consist of or include a scheme pension which is liable to reduction by abatement while the member is employed as mentioned in sub-paragraph (7B)(a) and is under the age of 55.

(7H) The materially different employment condition is met—

(a) in a case where the member is employed as mentioned in sub-paragraph (7B)(a) in more than one employment during the period of five months mentioned in sub-paragraph (7F)(b), if each of those employments, and

(b) otherwise, if the employment in which the member is so employed during that period, is materially different in nature from the employment in which the member was employed immediately before becoming entitled to the benefits mentioned in sub-paragraph (7)(a).

(7I) For the purposes of sub-paragraph (7D) “employment on compulsory recall” means permanent service—

(a) under Part 4 of the Reserve Forces Act 1996,

(b) under Part 5 of that Act,

(c) under a call-out or recall order made under that Act,

(d) having been called out or recalled under the Reserve Forces Act 1980, or

(e) because of any other call-out or recall obligation of an officer.

(7J) [Section 1122 of the Corporation Tax Act 2010] (connected persons) applies for the purposes of this paragraph.]

[(7K) In sub-paragraph (7F)(c)—

“coronavirus” has the same meaning as in the Coronavirus Act 2020 (see section 1(1) of that Act);

“the coronavirus period” means the period beginning with 1 March 2020 and ending with 1 November 2020.

(7L) The Treasury may by regulations amend the definition of “the coronavirus period” in sub-paragraph (7K) so as to replace the later of the dates specified in it with another date falling before 6 April 2021.

(7M) The power in sub-paragraph (7L) may be exercised on more than one occasion.]

(8)

The member’s protected pension age is the age from which the member had an actual or prospective right to [any benefit] under the protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).

(9)

But this paragraph does not have effect so as to give the member a protected pension age of more than 50 at any time before 6th April 2010.”

Relevant Provisions of Firemen’s Pension Scheme Order 1992

27.

The immediately relevant provisions of FPSO

Applicable in England. There are now different provisions of the SI applying to each of England, Scotland and Wales.

that I was referred to as applying to Mr Howell are those of the pension scheme itself as set out in Schedule 2 to the statutory instrument. They were A3 (dealing with the persons to whom the Scheme applies), A13 (setting out the normal pension age of 55) and B1 setting out an entitlement to take an ordinary pension at the age of 50 (calculated in accordance with Part 1 of Schedule 2) in certain cases of long service. That entitlement will not apply in certain circumstances whose existence can only be determined in connection with or at or shortly before actual retirement. For present purposes, the key condition is that the entitlement to a pension at the age of 50 will not apply to a Chief Fire Officer, if the Chief Fire Officer retires before the age of 55, unless notice of retirement was given with the permission of the fire and rescue authority.

28.

The short issue is whether or not any such entitlement of the CFO prior to notice of retirement being given is, as Ms Brown submits, an “actual” or “prospective” right to such benefit within the meaning of paragraph 22 of Schedule 36 FA 2004 or, as Mr Oakes submits, neither an “actual” nor a “prospective” right because it is dependent on a third party giving a relevant consent or permission before the right to a pension can come into being, such consent/permission being that of the claimant to the relevant notice of retirement being given. In what follows, the extracts from FPSO are those in force as at 5 April 2006.

29.

The issue is whether or not relevant rights were held by Mr Howell as at 6 April 2006 and therefore the version of the statutory instrument that applied at that time to Mr Howell. In what follows I have used the version said to ave been in force by Westlaw which also shows, by square brackets amendments from the SI as originally enacted.

30.

A3 of Schedule 2 to FPOS provided:

“A3 Exclusive application to regular firefighters

(1)    Subject to [paragraphs (3) and (4)] , this Scheme applies in relation to regular firefighters and their spouses [ or civil partners] and dependants to the exclusion of pension provision under any enactment other than section 26 of the principal Act and the Social Security Act 1975.

(2)

In paragraph (1) “pension provision” means any provision for the payment of a pension, allowance or gratuity, on cessation of employment or on death, in respect of employment as a regular firefighter.

(3)

A person who is not [an employee of a fire and rescue authority] but whose employment is, under rule A4 or A5, treated for the purposes of this Scheme as employment as a regular firefighter is not a regular firefighter for the purposes of this rule.

[ (4) Nothing in this rule prevents provision being made by this Scheme in respect of pension credit members. ] A13 of Schedule 2 to FPOS provides:

31.

A13 of Schedule 2 to FPOS provided:

“[A13. Normal pension age

The normal pension age of employees of a fire and rescue authority appointed on terms under which they are or may be required to engage in fire-fighting is 55.]”

32.

B1 of Schedule 2 to FPOS provided:

“B1.— Ordinary pension

(1)

Subject to paragraph (2), this rule applies to a regular firefighter who retires if he then—

(a) has attained the age of 50, and

(b) is entitled to reckon at least 25 years' pensionable service, and (c) does not become entitled to an ill-health award under rule B3.

(2)

This rule does not apply—

(a) to a person whose notice of retirement states that he is retiring for the purpose of [taking up employment with another fire and rescue authority], or

(b) unless his notice of retirement was given with the permission of the [fire and rescue authority], to a [chief fire officer]…. who retires before attaining the age of 55, or

(c) where immediately before the person's retirement an election under rule G3 not to pay pension contributions had effect.

(3)

A person to whom this rule applies becomes entitled on retiring to an ordinary pension calculated in accordance with Part I of Schedule 2.”

The Facts

33.

Unfortunately, the parties were unable to agree, as directed, a statement of facts and issues. Somewhat unusually, the parties rather than awaiting or seeking a relevant court order, decided that they would adopt the route of having “particulars of claim” and a defence (rather than, if ordered by the court, points of claim and points of defence) in these part 8 proceedings. The status of these statements of case is somewhat uncertain. Written witness evidence was served and HMRC agreed that there should be no cross-examination nor any disclosure. In its defence, HMRC in large point put the claimant to proof of the facts as pleaded. In reaching trial, HMRC sought to maintain the position that certain of the facts were not proved but that HMRC was prepared to accept the facts for the purposes of the hearing before me only.

34.

In my judgment, HMRC’s initial stance regarding the facts was misguided. This was the trial of the Part 8 claim. There was written evidence filed. If not contested then the facts set out in that witness evidence would be facts that the court would be able to, and would be likely to, find. Once those facts were found they would bind HMRC and the other parties, not just for the hearing but thereafter.

35.

I understood Mr Oakes ultimately to accept:-

(1)

that in the material respects set out below, there was uncontested evidence before me justifying the findings of fact which I set out below.

(2)

that in reality HMRC were contesting the construction put upon the FA 2004 relied upon by the Claimant and/or some of the asserted facts put forward by Ms Brown without any supporting evidence.

36.

However, Ms Brown was also not prepared to agree certain facts that HMRC wished to rely upon. Again, when tested, Ms Brown ultimately accepted (as I understood it) that the relevant facts set out below were either agreed or that it was open to me on the evidence to make findings of fact regarding the same and that her client ultimately did not dispute the same.

37.

The key facts that I find as applying in this case are therefore as follows. They are in part taken from a draft statement of facts that the parties were unable to agree and in part from the evidence before me, most pertinently, a witness statement of Mr Michael Pearson (“Mr Pearson”) dated 18 November 2021. Mr Pearson has been employed by the Fire Authority since 2007 and is currently its Director of Governance and Digital Services. He is also the Clerk to the Authority and the Monitoring Officer.

38.

The Scheme is a registered pension scheme and a public service pension scheme under the FA 2004, section 150(2) and 150(3) respectively.

39.

Firefighters employed by local authorities are eligible to join the Scheme.

40.

Mr Howell is a chief fire officer within the meaning of paragraph B1 FPSO, with more than 25 years of pensionable service. He was appointed as a firefighter with Essex Fire and Rescue Service on 1 September 1988. He secured the rank of Chief Fire Officer with Suffolk Fire & Rescue Service on 1 December 2004. Mr Howell commenced in employment with the Claimant as chief fire officer on 10 January 2009. This was part way through the period of 25 years of pensionable service. He reached 25 years of pensionable service on 1 September 2013.

41.

According to an Opinion of Ms Felicity Cullen KC (at the time QC) dated 18 March 2010 (Ms Cullen’s Opinion) (and I find), Mr Howell’s contract of employment with the claimant (subject to the letter referred to below): “contains the following terms covering retirement and pension provision:

"9. Retirement

Nominal Pension Age for members of the Firefighters' Pension Scheme is 55 with protection of certain benefits for those formerly with a compulsory retirement age of 60. For the New Firefighters' Pension Scheme the Normal Retirement Age is also 60. You are required to retire in accordance with the regulations of your pension scheme and no later than the day before your 65th birthday.

10.

Pension Scheme

The Firefighters' Pension Scheme and the New Firefighters' Pension Scheme are administered on behalf of DSFRS by Devon Pensions Services. If you are a member of either of these pension schemes then you will be able to transfer your membership to the Service. The Firefighters' Pension Scheme and the New Firefighters' Pension Scheme are contracted out of the State Second Pension Scheme (S2P) which used to be called the State Earnings Related Pension Scheme. Further details on the scheme can be found on the DCLG website.”

42.

Doubts having arisen as to how the transitional provisions under the FA 2004 that I have outlined operated, the matter was submitted to Ms Cullen KC for her opinion. The relevant background was described by her as follows:

“3.

The CFO is concerned about the potential effect of changes in pensions tax legislation with effect from 6 April 2010 and has asked DSFRS to consider including within the Contract a clause permitting him to retire at age 50 in 2019.

4.

DSFRS is willing to consider this request but is concerned at the possibility of becoming subject to scheme sanction charges under the provisions of Part 4 FA 2004. I have been asked to advise on the potential liabilities to scheme sanction charges which may arise as a result of changes to the Contract. It has been specifically agreed that my advice will be limited to the relevant tax points and I am not required to consider the contractual and possible employment law issues raised in my letter of instruction.”

43.

The main part of her opinion is a discussion as to whether the rights under FPSO paragraph B1 are rights which are “actual or prospective” within the meaning of paragraph 22(4)(a), Schedule 36 FA 2004. Her conclusion was as follows:

“In conclusion, it is my view that, on a proper construction of para.22 Schedule 36 FA 2004, the CFO is, in principle, entitled to benefit from a protected pension age of 50. The retirement condition (or any further requirements resulting from any changes in law) will have to be satisfied at the appropriate time if protection is to be available in fact. HMRC's Manuals indicate, however, that it may well take a different view to my own and this cannot, as a matter of practice be ignored.”

44.

The position of HMRC, as identified by Ms Cullen, reflects their position before me in this case. As she set out:

“21.

The key issue in relation to the condition in para.22(4)(a) Schedule 36 FA 2004 is whether a right which is, on its face, qualified in the sense that it is conditional on "permission" (the term used in Rule B1.(2) of the FPS), can be construed as being an actual or prospective right. HMRC thinks not: in its Manuals at RPSM 03106020, in describing the protected pension age requirements relating to rights to take benefits under age 55, it states that "the rights must be unqualified (in that no other party need consent to the individual's right before it becomes binding on the scheme or contract holder)." It is my view that a requirement for permission and a requirement for consent (the term used in RPSM 03106020) are indistinguishable for these purposes. Reference should also be made to RPSM 03106025.*

* In RPSM 03106025 HMRC states as follows:

"Some rules give members an unqualified right to take benefits but only when certain conditions are met. If an individual meets the conditions providing the unqualified right to take benefits before age 55 they will have a protected pension age."

An example is then given relating to redundancy, but it may be possible to infer that a consent condition can become unqualified by the giving of consent or permission.”

45.

In paragraph 17 of the Defence, HMRC’s position is stated shortly:

“17…..

(a)

It is admitted that paragraph 22 of FA 2004, Schedule 36, Part 3 requires an ‘actual or prospective right’;

(b)

However, as to paragraphs 3.11.1, 3.11.2 and 3.11.4, it is denied that the 1st Defendant had, at the relevant time, an actual or prospective right: any entitlement to an early retirement pension was entirely dependent upon a 3rd party (the fire and rescue authority) giving, in the future, consent to early retirement (via the mechanism of an early retirement notice) – which consent might, or might not, be given;”

46.

Before me, Ms Brown also referred to PTM062210 which goes on to explain what HMRC means by an unqualified right:

“To have a protected pension age the member must have had the right to take benefits before normal minimum pension age. That is not the ability to take benefits, but an unqualified right.

An individual has an unqualified right to take benefits if they do not need the consent of anybody before they can take their benefits. If the scheme documentation states that the consent of the trustees or employer is required to take benefits the member does not have an unqualified right to take benefits.

(It does not matter that the trustees have always operated their discretion to allow the payment of early benefits, the right is still not an unqualified right.)

For example, on 10 December 2003 a scheme may give its members an unqualified right to take pension benefits before age 55, but only if they are active members. Deferred members may take benefits before age 55 but only with the consent of the trustees or the employer. The active members as at 5 April 2006 who were also active members on 10 December 2003 or who joined the scheme after that date therefore have a protected pension age but the deferred members do not. On or after 6 April 2006, the employer decides that it will close its defined benefits section in the scheme and instead in future will provide benefits on a defined contributions basis in a new section of the existing scheme. As a result, those members who were active members of the defined benefits section on 5 April 2006 become deferred members of that section and active members of the defined contributions section (with a reserved right, qualified or unqualified) to take benefits before age 55. However, these members still retain their protected pension age as this is unaffected by any changes in scheme rules made from 6 April 2006 onwards. So, they are still able to take their benefits before age 55 after 2010 provided that consent to taking the deferred benefits (and their defined contribution section benefits if the right to them is qualified) is given and that they become entitled to all their scheme benefits under both the defined benefits and defined contributions sections on the same date

(Emphasis added by Ms Brown).

47.

Following receipt of Ms Cullen’s opinion, by letter dated 31 March 2010, the Claimant proposed an amendment of Mr Howell’s contract of employment, which he accepted on or about 16 April 2010. Having cited the provision regarding retirement that I have set out earlier, the claimant’s letter went on to say:

“In accordance with the Firefighters’ Pension Scheme 1992, the Devon & Somerset Fire & Rescue Authority have given permission for you to submit notice of your intention to retire from age 50 subject to the following:

1.

You being entitled at that time to reckon at least 25 years’ pensionable service; AND

2.

Subject to your not becoming entitled to an ill-health award under Rule B3 of the Scheme; AND

3.

Your notice of retirement not indicating that you intend to retire for the purpose of taking up employment with another fire and rescue service; AND

4.

Any pensions benefit payable before the age of 55 not representing an unauthorised payment as defined in the Finance Act 2004.”

48.

Two points can be made about this letter. First, the permission to submit a notice of intention to retire from age 50 was dependent on any pensions benefit payable before the age of 55 not representing an unauthorised payment. Secondly, if HMRC are correct on their construction of the relevant transitional provisions of schedule 36 FA 2004 as applied to the Scheme, this letter was too late to remove the need for any consent so as to make any right to an early pension (payable prior to the age of 55) not subject to consent or permission of any third party. On HMRC’s case, the condition would have to have been met back on 5 April 2006.

49.

The claimant is willing to make payments by way of pension to Mr Howell, prior to him reaching 55 but provided that such payments do not amount to unauthorised payments as defined by the provisions of the FA 2004 that I have set out earlier in this judgment.

The issues

50.

Unfortunately the parties were also unable to agree a formulation of the issues that the court was being asked to decide.

(a)

The key issue: paragraph 22(4)(a) sch 36 FA 2004: the entitlement condition: “actual or prospective right to benefits from an age of less than 55 as at 5 April 2006”

51.

The parties were agreed that the key issue was the application of the transitional provisions under Schedule 36 FA 2004 to the situation concerning Mr Howell and in particular the issue of whether or not within the meaning of paragraph 22 of Schedule 36 as at 5 April 2006 he had an “actual” or “prospective” right to benefits under the Scheme from an age of less than 55. The precise formulation of any appropriate declaration remained in issue. The issue as to formulation of the declaration was one that I considered should properly be considered after my judgment on the key issue.

52.

I should add that a great deal of the written skeleton arguments was taken up with the issue of whether the court could or should make a declaration and if so on what jurisdictional basis. Some of this related to other relief apparently being sought by the Claimant, as I shall refer to later in this judgment. As regards declaratory relief in relation to the “entitlement condition” Ms Brown submitted that such relief should be granted to her as a trustee seeking directions. Mr Oakes submitted that Ms Brown’s client was not a trustee and therefore that any declaration could only be granted under the court’s general discretionary power and not in the context of its role in relation to trustees. At the end of the day, Mr Oakes (and as I understood it, Ms Brown) accepted that, even under the general jurisdiction of the court, there was both jurisdiction and, as a matter of discretion, it would be appropriate for the court to make a declaration regarding the point of law arising with regard to whether or not, on the facts, Mr Howell fulfils the “entitlement condition” of paragraph 22 of schedule 36, FA 2014. I need not therefore consider the question of the trustee status of the Claimant nor the general law relating to the grant of declaratory relief in that context any further.

(b)the “retirement condition” paragraph 22(7) Sch 36 FA 2004

53.

The second issue that surfaced during the hearing was whether or not the “retirement condition” was met. As I have pointed out, whether the retirement condition is met appears largely to depend upon future events. However, Ms Brown submitted that there were matters that were capable of being determined now. Her submission is that, first, all benefits payable under the Scheme will be payable at the same time, so that paragraph 22(7)(a) of schedule 36 FA 2004 is met. Secondly, she submits that paragraph 22(7)(b) does not apply in the circumstances here. That is because, she says, paragraph 22(7)(b) does not apply at all unless on 5 April 2006 Mr Howell had an actual or prospective right under the Scheme to any benefit from an age of less than 50. If he did then condition 1 has to be met and if it is not then conditions 2 or 3 have to be met.

54.

Mr Oakes’ position was that HMRC had not come prepared to deal with this issue. As regards 22(7)(a), HMRC needed more time to consider the Scheme as a whole and the benefits potentially payable under it which might go wider than simply a pension at age 50. As regards paragraph 22(7)(b), he did not agree that as a matter of construction paragraph 7(b) was dealing solely with a situation where the member had, on 5 April 2006, an actual or prospective right to any benefit from an age of less than 50. Rather, if that was the case then condition 1 had to be met. If that was not the case (ie there was no such entitlement), then conditions 2 and condition 3 came into play and one at least had to be satisfied. The words “in any other case” were a reference to any other case than where on 5 April 2006 the member had the relevant right, not a reference to a case where, in such circumstances, condition one was not met. I note that Ms Cullen KC’s opinion seems to proceed on the basis put forward by Mr Oakes.

55.

Ms Brown referred me to the particulars of claim and the defence. She said that the statements of case prevent HMRC from now raising a contrary case that the “retirement condition” is, or may, not be met. True it is that the particulars of claim assert, for example in paragraphs 3.7 and 3.8, that the “only point of concern” was whether paragraph 22(4) of schedule 36 FA 2004 applies and that the Claimant’s position was that the “other conditions” (that is of paragraph 22) are met. Further, the Defence simply “noted” these paragraphs. Nevertheless I am not satisfied that the Second Defendant is prevented from raising the issue. The hearing before me concentrated almost entirely upon the paragraph 22(4) point and the “entitlement” position. I heard very limited argument indeed on the retirement condition under paragraph 22(7), most of it directed to whether HMRC were prevented from denying the assertion that the condition was met. The hearing as it was overran its time estimate by a substantial margin. I do not consider that I should deal with the retirement condition issue without it being clearly formulated and relevant evidence and proper full submissions being made. If it is necessary to allow HMRC to amend their statement of case I would allow them to do so but I do not consider that it is. I would not be prepared to make any declaration in the particular circumstances based upon some form of pleading point that HMRC are not permitted to raise any counter arguments.

56.

I will hear from counsel on hand down of this judgment whether these proceedings should be left alive to deal with the retirement condition on another day or whether the matter can be left to be dealt with (if it arises) in separate proceedings (subject to any Henderson v Henderson point).

(c)The trustee’s discretion: directions as to action to be taken

57.

As is clear to me from the statements of case and the draft list of issues, the key question before me was whether as a matter of law the “entitlement condition” was met (and more narrowly whether the first element of that condition was met). However, in her skeleton argument for the hearing, Mr Brown commenced by saying that the Claimant had applied for an order that it is able to and should make a payment to Mr Howell prior to his attaining the age of 55 (emphasis supplied). In fact directions as to what the claimant “should” do (and in particular whether it should make a payment even if it did amount to an unauthorised payment) had never been raised before. In her supplemental skeleton, Ms Brown suggested that the Claimant was seeking declaratory relief as to whether it would be within its powers to make a payment to Mr Howell before he attains the age of 55 without making provision for unauthorised payments. This again seemed to be relief relating to the scope of the Claimant’s powers and how it should exercise them.

58.

As I understood it Ms Brown ultimately accepted that she was not seeking the directions of or declarations by the court as to what the Claimant should do (which would involve consideration of a lot more evidence than that which was before me and might involve the need for joinder of other persons to the extent that for example, the making of an unauthorised payment might have an effect upon the relevant Scheme). The Claimant really needs to know what the legal position in relation to the entitlement condition in the case of Mr Howell and will then have to consider what course it is appropriate for it to take. Its current position, as I understand it, is that it is not prepared to make an early payment of pension (ie before Mr Howell attains the age of 55) if that would be an unauthorised payment under FA 2004. I note however that, as I go on to explain later in this judgment, part of Ms Brown’s submissions seemed to be to the effect that the claimant had to make an early relevant payment in any event.

(d) HMRC’s manual(s)

59.

At one point it was, at the least, unclear whether it was being suggested that the court should grant some form of relief in relation to HMRC’s manual(s) which is/are said by the Claimant inaccurately to record the relevant law regarding the meaning and application of the “entitlement condition”. It was clarified that no relevant relief is being sought in this respect and I need say no more about it.

Statutory construction and the meaning of legislation

60.

In my judgment, I have to construe the meaning of the words “actual or prospective right to benefits” in paragraph 22 of Schedule 36 to the FA 2014 and to decide whether or not Mr Howell’s position falls within that provision.

61.

I was referred to a number of cases about statutory construction. I set out a summary of my main conclusions drawn from those authorities.

62.

In conducting statutory interpretation, the courts are “seeking the meaning of the words which Parliament used” and identifying the meaning borne by the words in question in the particular context in which they are used. The Court is not however to engage in a process of finding a meaning which is not justified by the words that Parliament has used, or which is selected for some reason other than the presumed intention of Parliament, such as the personal view of the judge (R(PRCBC) v Home Secretary [2022] UKSC 3 at [29], [59], [66]; Black-Clawson International Ltd v Papierwerke Waldhof-Aschffenburg AG [1975] AC 591, 613 Per Lord Reid; R v Secretary of State for the Environment Transport and the Regions, Ex P Spath Holme Ltd [2001] AC 349, 396).

63.

Statutory interpretation involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey using the statutory words which are being considered. This means that, for example, the subjective intentions of the draftsman, the promoter, or individual members or even a majority of members are all irrelevant. Parliament’s “intention” in this context is the intention reasonably imputed to Parliament in respect of the language used (R(PRCBC) v Home Secretary at [31], [59]; Ex p Spath Holme Ltd at 396-7).

64.

However, an expressed intention of a Government Minister may become relevant to ascertaining the objective intention of Parliament under the rule in Pepper v Hart.

65.

Part of the context will be the statutory context, that is the section of the relevant piece of legislation as a whole and the wider context of the relevant group of sections. The statute as a whole may provide the relevant context. They are the words Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained (R(PRCBC) v Home Secretary at [29]).

66.

Other external aids may cast light on the meaning of particular statutory provisions. As regards statements made in Parliament, a special rule applies referred to in shorthand as the rule in Pepper v Hart, being named after the case in which the House of Lords relaxed the rule that there could be no reference to such material ([1993] AC 593). I will deal with that rule separately. What follows is dealing with external aids (that is aids external to the statute itself) other than matters covered by the rule in Pepper v Hart.

67.

External aids may cast light on the meaning of particular statutory provisions (for example Explanatory Notes to the legislation); disclose the background to a statute, the mischief it addresses and/or the purpose of the legislation thereby assisting in a purposive interpretation of a particular statutory provision (for example, Law Commission reports, Royal Commission reports, reports of advisory committees and Government White Papers ((R(PRCBC) v Home Secretary at [30]).

68.

Such external aids may also reveal that the language of a statute, initially thought to be clear, is in fact ambiguous. They may then assist the court in ascertaining the true meaning of the statute (R(PRCBC) v Home Secretary at [29], [63], [67], [76]; Fothergill v Monarch Airlines Ltd [1981] AC 251 at 281).

69.

The court is also able to rely upon a body of principles of construction and/or prima facie assumptions or presumptions (R(PRCBC) v Home Secretary at [29], [41], [43] and see discussion of examples of these at [34]-[40]).

70.

The court will usually look at any external material drawn to its attention which properly throws light on the meaning of the words that Parliament has used. That may include language dictionaries and/or legal dictionaries. Further, other case law or other statute which uses similar language may be of assistance in understanding concepts or how meanings have been attributed to words in different contexts. Indeed, at least some legal dictionaries (as will language dictionaries) give examples of the meaning attributed to words and concepts in different contexts.

Pepper v Hart

71.

HMRC seek to support their contention as to the meaning of “actual and prospective” by referring to the statements made by a Government Minister, Ms Ruth Kelly MP, then Financial Secretary to the Treasury in Parliament during the passage of the then Finance Bill and which became FA 2004. These comments were made by her during the consideration of the then Finance Bill by the Standing Committee of the House of Commons, which considered the amendment which became paragraph 22 of Schedule 36 FA 2004.

72.

Such references are not a legitimate aid to statutory interpretation unless the three conditions set out by Lord Brown-Wilkinson in Pepper v Hart [1993] AC 593, 640 are met. Those three conditions are: (1) that the legislative provision must be ambiguous, obscure or, on a conventional interpretation, lead to absurdity; (2) that the material must be or include one or more statements by a minister or other promoter of the Bill; and that (3) the statement must be clear and unequivocal on the point of interpretation which the court is considering, (see R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2022] UKSC 3; [2022] 2 WLR 343, per Lord Hodge DPSC at paragraph [32]).

73.

There was a debate before me as to the meaning of “ambiguity” in this context. Ms Brown submitted that “ambiguous” meant something more than “capable of bearing more than one meaning”. In this respect she focussed upon the passage of the speech of Lord Browne-Wilkinson in Pepper v Hart as set out below (with her emphases):

“Statute law consists of the words that Parliament has enacted. It is for the courts to construe those words and it is the court's duty in so doing to give effect to the intention of Parliament in using those words. It is an inescapable fact that, despite all the care taken in passing legislation, some statutory provisions when applied to the circumstances under consideration in any specific case are found to be ambiguous. One of the reasons for such ambiguity is that the members of the legislature in enacting the statutory provision may have been told what result those words are intended to achieve. Faced with a given set of words which are capable of conveying that meaning it is not surprising if the words are accepted as having that meaning. Parliament never intends to enact an ambiguity. Contrast with that the position of the courts. The courts are faced simply with a set of words which are in fact capable of bearing two meanings. The courts are ignorant of the underlying Parliamentary purpose. Unless something in "other parts of the legislation discloses such purpose, the courts are forced to adopt one of the two possible meanings using highly technical rules of construction. In many, I suspect most, cases references to Parliamentary materials will not throw any light on the matter. But in a few cases it may emerge that the very question was considered by Parliament in passing the legislation. Why in such a case should the courts blind themselves to a clear indication of what Parliament intended in using those words? The court cannot attach a meaning to words which they cannot bear, but if the words are capable of bearing more than one meaning why should not Parliament's true intention be enforced rather than thwarted?”

74.

Ms Brown’s submission was that nowhere does Lord Browne-Wilkinson “explain that ambiguous means capable of bearing more than one meaning”. I have difficulty with that proposition. However, as I ultimately understood her submission, it was to the effect that if (without reference to the relevant Parliamentary statement sought to be adduced into evidence) relevant words used in a statute are words that the court considers to be capable of having more than one meaning (she would say “plausible meaning”) then the words will be “ambiguous” for the purposes of the rule in Pepper v Hart. In this case, she says, the relevant words are not ambiguous. If I am correct in my understanding then I do not consider Ms Brown’s submission to be contentious.

The “entitlement condition”

75.

Ms Brown’s submission is that the meaning of “actual or prospective right” is not ambiguous. She says that, as at 5 April 2006, Mr Howell had either an “actual” or a “prospective” right to benefits. She says that the meaning of “actual” and “prospective” is to be derived from dictionaries and are words of ordinary and wide meaning.

76.

As regards dictionary definitions, Ms Brown relied upon the meanings set out in the Merriam-Webster Dictionary online as follows:

(1)

As regards “actual”:

“1a: existing in fact or reality

actual events

actual and imagined conditions

b: not false or apparent

actual costs

c

—used for emphasis

This is the actual room in which my grandfather was born.

2: existing or occurring at the time

caught in the actual commission of a crime”

(2)

As regards “prospective”:

1: relating to or effective in the future

2a: likely to come about: EXPECTED

the prospective benefits of this law

b: likely to be or become

a prospective mother

77.

The submissions of Ms Brown to some extent developed over time. As I understood it she formally retained her original submission set out in her first written skeleton argument that the rights of Mr Howell under the Scheme were either “actual” and/or “prospective” within the meaning of the entitlement condition. That is on the basis, she submits, that they existed or existed at the relevant time (2006) and/or they were effective in the future. Further, the rights could be both “real” (i.e. actual) and prospective.

78.

In oral submission, she made clear that she did not push the case that the rights were “actual” very strongly and that she primarily asserted that the rights were prospective. That is because, although conditional, the rights to a pension were either “effective in the future” and/or “likely to come about”. Further, she submitted that it was either not clear that the Claimant would be in a position to refuse permission to an early retirement notice or even that it had no choice in the matter and that therefore the entitlement to an early pension was “likely”, if not inevitable, to come about.

79.

She also submitted that on the true construction of the Scheme and rule B1, Mr Howell had an actual right to a pension prior to age 55 which was only defeasible by a condition subsequent (e.g. if permission of the Claimant to the retirement notice at the relevant time was not forthcoming).

80.

Mr Oakes submitted that the relevant words of the entitlement condition required to be construed against the background of a consideration of:

(1)

the purpose of the legislation and the use of similar concepts in other relevant legislation. In particular, an “actual” right corresponds to an existing entitlement (usually denoting a pension in payment) and “prospective right” corresponds to an “accrued right” (denoting a current right to future payment but, in either event not a right which is conditional upon third party consent;

(2)

the explanatory notes to what was the Finance Bill 2004 (the “Explanatory Notes”);

(3)

A statement to the relevant standing committee made by the then Financial Secretary to the Treasury, Ms Ruth Kelly MP.

81.

The particular passage relied on as regards the Explanatory Notes is as follows:

“Paragraphs 20-22 protect the rights of two groups to take a pension at an age below 55 after 2010. The first group, dealt with in paragraph 21, has rights to retire at ages between 50 and 55 conferred or created by their employer in the context of an employment relationship via the occupational pension scheme. This right must be capable of being exercised by the employee or ex-employee unilaterally save only for the happening of any relevant contingency. Thus a right subject to any qualification such as “subject to trustee consent” would not be protected.”

82.

Paragraph 21 of what was then schedule 34 of the Finance Bill 2004 contained slightly different wording to that which eventually emerged in the Finance Act 2004 schedule 36. However, the general drift of the paragraph was entirely in line with the eventual form of paragraph 22 of Sch 36 FA 2004. Further, the “entitlement condition” in paragraph 21(2)(a) of the Bill mirrored that in paragraph 22 of schedule 36 FA 2014 in referring to the member having on 5 April 2006, an “actual or prospective right under the pension scheme to a pension from an age of less than 55”.

83.

As regards the passage from Hansard, the context was the movement of government amendments nos. 521 to 524 to the Finance Bill 2004 during the course of the consideration of the Finance Bill 2004 by Standing Committee A on 22 June 2004. Those amendments related to what became paragraph 22 of schedule 36 to the FA 2004. Amendment 523 was as follows:

“schedule 34, page 475, leave out lines 1 to 8 and insert

'(a) on 5th April 2006 the member had an actual or prospective right under the pension scheme to a pension from an age of less than 55,

(b) the rules of the pension scheme on 10th December 2003 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and

(c) such a right either was then conferred on the member or would have been had the member been a member of the scheme on that date.'.[Ruth Kelly.]”

84.

Amendment 523 was duly made in due course.

85.

The provision that amendment 523 replaced in the Bill was the definition of the “entitlement condition”. Schedule 34, page 456 of the Bill at the bottom of the page started with the then draft entitlement condition which was: “22(2). The entitlement condition is-”. Lines 1 to 8 as replaced on page 475 of the Bill was to the following effect:

(a) in the case of a relevant statutory scheme as defined in section 611A of ICTA or a pension scheme treated by the Inland Revenue as if it were such a relevant statutory scheme, on 5th April 2006 the member had an actual or prospective right under the pension scheme to a pension from an age of less than 55, or

(b) in any other case, the member had such a right under the pension scheme throughout the period beginning with 10th December 2003 and ending with 5th April 2006.”

86.

Speaking to the various amendments, the Financial Secretary to the Treasury said the following:

“Ruth Kelly: Pensions receive favourable tax treatment to encourage people to save for retirement. The deal between the Government and the pension saver is that that favourable tax treatment is conditional on using most of the savings built up in that way to generate retirement income, and not for other purposes. As part of the reform of tax rules for pensions, we intend to set the minimum age at which tax-privileged pensions can be drawn at 55 from 2010. That minimum benefit age will apply to all pensions that qualify for tax relief. Moving the minimum benefit age to 55 is not designed to prevent people from stopping work when they are younger than 55, if they can afford to do so using resources other than pensions, but they will not be able to use pensions built up with tax relief until the age of 55.

It would, of course, be unfair to introduce such a change in a way that cut across people's contractual rights to take an occupational pension at an earlier age. People with such rights may well have planned for their future on that basis, or even taken redundancy from their employer in the expectation that their occupational pension would become payable before they reached the age of 55. Because of that, provisions in the schedule protect the rights of employees in occupational pension schemes to retire before 55, provided certain conditions are met: first, that the right was in place before 10 December 2003 and, secondly, that the right is an absolute right and not subject to any conditions such as the consent of the employer.

Amendments Nos. 520 to 522 are tidying-up amendments that correct and clarify references to minimum pension age. Following representations on theDecember 2003 consultation document, we are now proposing a relaxation of the original proposals.

Amendments Nos. 523 and 524 would extend the protection to individuals who join their occupational pension scheme after 10 December 2003 but before 6 April 2006 A-day. They will be able to retire at the scheme's minimum pension age or normal retirement age provided that on 10 December 2003 the occupational pension scheme offered such a date to all existing members.”

87.

As regards the rights that Mr Howell had under the Scheme as at April 2006, Mr Oakes submits that Mr Howell did not then have an actual or prospective right to a pension. The right would only come into being once permission of the Claimant was given.

88.

Ms Brown made a number of points regarding the reliance of Mr Oakes on other statutory provisions and their interpretation by the courts, the reliance on the Explanatory Notes and the reliance on Hansard. I do not set them all out here but they included (at various stages) that there was no need to construe the relevant provisions of the FA 2004 which was clear and unambiguous, there was therefore no need to look at the Explanatory Notes and no ability to look at Hansard and the relevant statement of Ms Kelly MP, the statements in the Explanatory Notes and of Ms Kelly MP were themselves unclear and required to be construed and could not be relied upon in the exercise that I had to undertake and that other statutory provisions used other language and concepts and were therefore either not to be looked at or, having been looked at, provided no assistance. Finally, the provisions of rule B1 of Schedule 2 FPOS, did not fall within the description given by the Explanatory Notes or Ms Kelly MP as to the matters excluded from “actual or prospective rights”.

89.

First of all, it seems to me that Ms Brown is wrong to say that the meaning of the relevant constituent elements of the entitlement condition can be determined simply by looking at a dictionary of the English language. I will come onto the meaning of “actual” separately but, leaving that aside, the “likelihood” of something happening, for the prospective test, is an uncertain test. One of the dictionary examples is a “prospective mother” but one can see that in some contexts that might be limited to a pregnant female whereas in others it might extend to a female who is hoping and planning to become pregnant. Clearly as at 2006 a firefighter who was, say 38 years old, might be said have a prospective right to a pension at some age, even that were contingent on the firefighter achieving the relevant pensionable age under the relevant scheme. Further, as well as what might be said to be naturally occurring contingencies, that right might be conditional on the firefighter not then taking up certain sorts of employment. Such a condition would be within the firefighters’ control. However, the more the contingencies depend not on actions of the firefighter or the occurrence of natural events, the more questionable it becomes as to whether the right is a “prospective” right. Further, if the test is “likelihood” does the answer depend on the factual position in relation to the individual concerned? If they are diagnosed with a condition in 2006 that at the time is likely to lead to death shortly and is incurable, but the firefighter in fact survives, would he not have had a prospective right as at 2006 on the basis that as regards him it was then very unlikely that he would survive to pension age?

90.

Further, it is clear that in other areas of the law, “prospective” may be contrasted with “contingent” (see e.g. debts under the Insolvency Act 1986 and Stonegate Securities Ltd v Gregory [1980] 1 Ch 576 at 579E-F).

91.

In short, it seems to me that the meaning of “actual or prospective right to benefits” is not one that can be answered solely by looking at a dictionary definition. In any event, as I go on to consider, the Explanatory Notes can, in my judgment, be relied upon to identify that there is indeed an ambiguity in the terms in question. I do not consider that the words are not capable of bearing the meaning that the Explanatory Notes give, that is one which excludes a right which is contingent on some third-party consent.

92.

Ms Brown submitted that the court should first consider the meaning of the words and that if they are clear there is “no need to delve into the policy background”. However, that is to ignore the point that the courts have said that Explanatory Notes or background information may in fact identify an ambiguity in the language. Even if I am incorrect that the language is ambiguous, then the Explanatory Notes in this case fulfil exactly that function. I also reject Ms Brown’s submission that Explanatory Notes should not be taken into account, alternatively given no weight, on the basis that they are “technical, difficult to find and difficult to understand” and are not therefore “readily available”. Indeed, I also note that, as Mr Oakes pointed out, the Explanatory Notes were themselves expressly considered by Parliament at various stages of the passage of the Bill (although not the provisions I am dealing with).

93.

I turn to the authorities relied upon by Mr Oakes as, he submits, throwing light upon the transitional provisions in this case and the meaning to be given to “actual or prospective rights” as part of the entitlement condition.

94.

Turning first to “actual right”, Mr Oakes submits that this means a right which existed as at 5 April 2006 in an unqualified form at that time in the sense that at that time there was an unqualified right to receive benefits (i.e. in this case the pension). He submits that as at 5 April 2006 Mr Howell had no immediate unqualified right to a pension: his right to a pension under the Scheme was a right to a pension in the future if and when (among other things) he attained the relevant age.

95.

I accept Mr Oakes’ submissions to the effect that an “actual right” to a benefit in this context is to be equated with the concept of unconditional “entitlement to payment” rather than having any element of prospectivity about it. This is supported, by example, by the Explanatory Notes to what was clause 205 of the Finance Bill 2004 and which is now section 216 of the FA 2004. Section 216 identifies benefit crystallisation events and the amount crystallised in the context of the lifetime allowance charge. It draws a distinction between persons becoming entitled to certain benefits (eg a pension or an annuity) and the individual reaching a certain age when “prospectively entitled” to various benefits. The Explanatory Notes to clause 205 of the Finance Bill 2004 (which became s216 FA 2004) explain:

“‘The point at which an individual becomes entitled to the payment of a pension is when the right to receive it becomes actual as opposed to prospective, or in other words, when the pension payments commence”.

96.

Furthermore, previous pensions legislation has sought to protect rights already granted. Section 67(2) of the Pensions Act 1995, in its original form, prevented exercise of any power conferred on a person to modify an occupational pension scheme:

“ on any occasion in a manner which would or might affect any entitlement, or accrued right, of any member of the scheme acquired before the power is exercised […]”

97.

Section 67(2) as amended makes voidable the exercise of a power in relation to “subsisting rights” defined as being:

(a) in relation to a member of an occupational pension scheme, at any time–

(i) any right which at that time has accrued to or in respect of him to future benefits under the scheme rules, or

(ii) any entitlement to the present payment of a pension or other benefit which he has at that time, under the scheme rules, […]”

98.

This suggests, at the least, the possibility of a distinction in the entitlement condition between an “actual right” (being equivalent to an entitlement) and an prospective right (being equivalent to an “accrued right”).

99.

I was referred to a number of cases construing relevant pension legislation. They included Courage Groups Pension Schemes [1987] 1 All ER 528; AON Trust Corporation v KPMG [2005] EWCA Civ 1004; Danks v Qinetiq [2012] EWHC 570; Barclays Bank v Holmes [2000] BPIR 339; Briggs v Gleeds [2014] EWHC 1178 (Ch) and Entrust Pension v Prospect [2012] EWCH 1666 (Ch). It is notable in the latter case that a “right” to a definable share of surplus was purely discretionary and that this was not therefore a right or entitlement within the relevant meaning of the instrument in question.

100.

I also note that in Alexander Forbes Trustee Services Limited v Clarke [2008] EWHC 153 (Ch), the meaning of “where a person’s entitlement to payment of a pension or other benefit has arisen” was in question. In that context, “entitlement” was found to be capable of extending beyond a pension already in payment to a situation where all the requirements for receipt of pension benefits had already been fulfilled or “lay wholly in the hands” of the relevant member. This appears to be an example where “entitlement" in the particular context went beyond its more narrow meaning where used in contradistinction to “accrued right”. Again, it demonstrates that resort to dictionaries does not yield the entire answer.

101.

Not by way of reliance on the meaning of the words given by her, but by way of illustrating that the relevant words of the entitlement condition in paragraph 22 of Schedule 36 FA 2004 are capable of bearing the meaning attributed to them by Mr Oakes (at least as regards the meaning of “actual right” contrasted with “prospective right”), I note also that Ms Ruth Kelly MP, in the context of became section 216 (the crystallisation clause) in answer to a number of comments by Mr George Osborne MP confirmed that:

“the hon. Gentlemen seem to have misunderstood the Bill. The concept of entitlement is clearly defined. It is consistent and it recurs throughout the tax simplification legislation. A benefit crystallisation event is triggered on the individual becoming entitled to a certain benefit. Entitlement has a clear meaning in the legislation, as set out in clause 155. The legislation uses “entitled” to mean the point at which an individual’s right to receive benefits under a pension scheme cease to be prospective and become actual”: Hansard 15 June 2004, Column 578, Clause 205.

102.

Ms Brown submits that I am not entitled to consider or, if I am, that I gain no assistance from, the case law on different statutory provisions and which use different terminology. I disagree. The concepts are useful and analogous and they demonstrate that the relevant words of the entitlement condition are capable of bearing the meaning given by Mr Oakes.

103.

In my judgment, whatever rights Mr Howell had in 2006 to receive benefits under the Scheme, those rights were not, as at 5 April 2006, “actual” within the meaning of paragraph 22 schedule 36 FA 2004. The real issue is whether they were “prospective rights” and therefore whether or not they do not qualify as such because of the contingency that they depend upon the consent of the claimant being given to the retirement notice as required by rule B1 of the Scheme. Furthermore, the words “prospective right” in the definition of the entitlement condition, are words that, in my judgment, are capable as a matter of language of excluding any entitlement that will only arise if and when a third party exercises a discretion or gives some consent or permission.

104.

In those circumstances, the Explanatory Notes are, in my judgment, clear that the words “actual or prospective” right to benefits excludes the situation where the right will only arise if a third party exercises a discretion or gives consent or permission.

105.

I should also note that, even if I am wrong about the boundary line between “actual and “prospective” rights, the Explanatory Notes make clear that the circumstances where a third party has to give consent/permission before the right arises is one outside the entitlement condition set out in paragraph 22(2)(a) of Schedule 36 FA 2004.

106.

As regards the Explanatory Notes, Ms Brown submits that the notes only refer to “trustee consent” whereas here the issue is employer consent or permission. I am not sure that that is correct. It seems to me that the consent required under FPSO is in fact that of the Claimant as relevant manager of the Scheme. In any event, the Explanatory Note is clear that the key is whether the right can be exercised unilaterally by the employee and of course that is not the case under FPSO (though I revert to that issue later in this judgment).

107.

I also reject the submission that it is necessary to construe the Explanatory Note and that it is difficult in its meaning or unclear. In my judgment the Explanatory Note is perfectly clear and makes sense in the overall policy context of the FA 2004’s relevant transitional provision.

108.

I turn to consider the question of the admissibility and effect of the statement of Ms Ruth Kelly MP to Standing Committee A on the relevant amendment (which was accepted and which became the entitlement condition) as set out in the Hansard extract that I have quoted. It seems to me that that statement in real terms replicates the relevant note in the Explanatory Notes. As such it may add little and it is probably not admissible on the basis that without it the meaning of the relevant entitlement condition is clear, using the Explanatory Notes, without having to resort to Hansard.

109.

Of the statement by Ms Kelly MP, Ms Brown says that the legislation is not ambiguous because resort to the English dictionary shows that it is not ambiguous. I do not agree. I do agree however that the relevant statutory provision is not ambiguous once it is construed against the background of the Explanatory Note.

110.

Strictly therefore I do not consider that the Hansard extract is admissible because I do not consider that there is ambiguity. If I am wrong on that point, I consider that the other pre-conditions of Pepper v Hart are met.

111.

I should note that at one point Ms Brown submitted that the relevant ministerial statement was not admissible because it was made only to a standing committee and not the whole House but of course that was the case in Pepper v Hart itself.

112.

Ms Brown also submitted that the Hansard extract does not expressly discuss the provision in question or the transitional scheme at all. I disagree.

113.

Ms Brown also submitted that the passages relied upon represent the intention of the Minister not the intention of Parliament. I disagree. Inevitably a relevant ministerial statement will express the intention of the Minister (or the Government) as to what words in a Bill are to mean if enacted but if that intention is expressly set out to Parliament and Parliament accepts the relevant wording then the intention of the Minister/Government is adopted by and becomes the intention of Parliament.

114.

Ms Brown also submitted that the statement of Ruth Kelly MP was unclear and contradictory because it cuts across her (Ms Kelly’s) earlier statement that it would be unfair to introduce a change which cuts across people’s rights to take a pension at an earlier age. I disagree with both propositions. In my judgment the statement is clear. Further it does not contradict her earlier statement, rather it explains what amount to rights that cannot be cut across and other “rights” which can be.

115.

Accordingly, my conclusions are:

(1)

to be an “actual right to a benefit” within the meaning of paragraph 22 of Schedule 36 FA 2004, the right must be an immediate right to the benefit and subject to no contingencies;

(2)

that where there is no immediate right to a benefit but a contingent future right subject to future contingencies, the right will be a prospective right (subject to (iii));

(3)

future contingences, such as the occurrence of natural events (attaining a certain age) or contingencies wholly within the control of the member (such as not taking certain specified types of employment on retirement (as in rule B1(2)(a)) or not making an election under the Scheme rules, as in B1(2)(c)) are contingencies that are consistent with the right being prospective. However, a condition that requires consent or permission of a third party before there is any right to a pension will be a contingency that will result in there not being a “prospective right to a benefit” within the meaning of FA 2004, schedule 36 paragraph 22.

FPSO and how FA 2014 applies to it

116.

In my judgment:

(1)

Rule B1(3) FPSO confers an entitlement, on retirement, to an ordinary pension calculated in accordance with Part 1 of Schedule 2 on a person “to whom this rule applies”;

(2)

The rule does not apply to a Chief Fire Officer, if he retires before the age of 55, unless his notice of retirement was given with the permission of (in this case, the Claimant);

There is therefore, at most, an entitlement conditional upon permission of a third party. I deal further below with Ms Brown’s submissions as to the nature of the “permission” in question and its effect.

117.

Further, I accept Mr Oakes’ submission that the natural reading of the rule is that there is no right in a CFO to receive an early pension unless and until permission to give notice of (early) retirement is given. There is no right before such permission and this is not a case where the right is subject to a condition subsequent which will remove an existing right.

118.

I return to the question of permission and consent and how that fits in with the meaning of the 2004 FA with regard to the first element of the entitlement condition.

119.

As I have said, I do not consider that there is anything in the point that the Explanatory Notes give an example of a third party consent (a trustee) and not that of an employer. Further, if there is said to be an ambiguity then the Ruth Kelly MP statement should be allowed in and that does cover employers too.

120.

Ms Brown’s submission is that, even if necessary consent of a third party to the grant of a pension right is outside the protection of the transitional provisions, because it does not meet the meaning of an “actual or prospective” right to a benefit, the requirement of permission within rule B1 of FPSO does not fall foul of this principle.

121.

First, she submits that “permission” is different to “consent” and that in this case “permission” does not operate as a “consent”. She also submits that rule B1 does not have words such as “subject to trustee consent”. I do not accept these submissions. Whether called “permission” or “consent”, in effect the Claimant has to take the further step of agreeing that a retirement notice can be given if the right to an early pension is to be activated. Mr Howell did not as at April 2006 have a right to an early pension dependent only upon his own actions or the happening of natural contingencies (such as attaining the relevant age). He was then dependent on receiving permission (or consent) of the Claimant in the future.

122.

Secondly, she submits that the Claimant, whether as manager of the scheme (or, she would say, trustee) or as employer would not in practice be able to refuse permission, the only right to refuse permission being confined to matters of “timing and form”. As regards inability to refuse consent she submitted that the employer could not realistically refuse permission to give notice of retirement because the contract of service would not be enforceable because specific performance would not be granted (citing cases such as Lumley v Wagner (1843-60) ALL ER Rep 368; C H Giles & Co. Ltd v Norris [1972] 1 ALL ER 960 and Warner Bros v Nelson [1937] 1 KB 209).

123.

As regards the latter point this seems to me to confuse ability to refuse consent to retirement and ability to refuse consent (or permission) to give notice of early retirement which triggers the right to an early pension. I was unclear on what basis Ms Brown said that the right to refuse permission was confined to timing or form and indeed what that meant. She suggested that a notice might be refused where the services of the chief fire officer were required to enable time to arrange a successor but accepted that if refused that could prevent any right to an early pension.

124.

Ms Brown also suggested that there was no ability to refuse permission under rule B1 FPSO because this would amount to a refusal to allow an early pension and amount to constructive dismissal. I accept Mr Oakes’ submission that this submission was not made out on the facts.

125.

Accordingly, I consider that as at 5 April 2006, Mr Howell did not have an actual or prospective right to benefits under the Scheme, in terms of a right to an early pension, within the meaning of the entitlement condition set out in paragraph 22 of schedule 36 FA 2004. This is because although he was within the Scheme, any right he had was contingent upon and did not arise unless and until the Claimant gave its permission for him to serve a relevant (early) notice of retirement for the purposes of the Scheme. The need for such third party consent means that he did not satisfy the entitlement condition as properly construed.

Conclusion

126.

In my judgment, such contingent right as Mr Howell had, as at 5 April 2006, under rule B1 of the FPSO to an early pension, that is one to be received under the age of 55, was not an “actual” or “prospective” right to benefits under paragraph 22 of Schedule 36 FA 2004. Accordingly, the entitlement condition laid out in that paragraph was not met. It follows that any payment to him of a pension under the Scheme under FPSO prior to him reaching the age of 55 will amount to an unauthorised payment under FA 2004.

127.

A draft minute of order having been lodged (which sets out what is agreed, and identifying the non-agreed respective proposals of the parties where there is non-agreement), short skeleton arguments regarding consequential matters should be filed and served by 4pm on Monday 13 February 2023. A remote hearing will be arranged by the court, if necessary at any time after 9:30am hopefully in that week and the parties should approach the court to make appropriate arrangements by 10am Tuesday 14 February 2023.

128.

In the meantime, I also make an order adjourning all consequential matters (including permission to appeal) and extend the time for filing a notice of appeal so that the 21 day period runs from the date that the final order is sealed.

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+

+

Neutral Citation Number: [2023] EWHC 257 (Ch)

+

Case No: PT-2021-001060

+

IN THE HIGH COURT OF JUSTICE

+

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

+

PROPERTY, TRUSTS AND PROBATE LIST (ChD)

+

Rolls Building,

+

7 Rolls Building, Fetter Lane
London EC4A 1NL

+

Date: 13/02/2023

+

Before :

+

HH JUDGE DAVIS-WHITE KC

+

(SITTING AS A JUDGE OF THE CHANCERY DIVISION)

+

- - - - - - - - - - - - - - - - - - - - -

+

Between :

+ + + + + + + + + + + + + + + + +
+

+

 +

DEVON AND SOMERSET FIRE AND RESCUE AUTHORITY (in its capacity as trustee of part of the Firefighters Pension Scheme under SI 1992/129 Firemen's Pension Scheme Order)

+		 +

+

+

+

Claimant

+
+

+

 +

- and -

+		 +

+

+

+

 + +(1) +

LEE HOWELL

+ + +(2) +

THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS

+ +		 +

+

+

Defendants

+
+

- - - - - - - - - - - - - - - - - - - - -

+

- - - - - - - - - - - - - - - - - - - - -

+

Ms Harriet Brown (instructed by Plymouth City Council Legal Services) for the Claimant

+

Mr Simon Oakes (instructed by HMRC Solicitor’s Office & Legal Services) for the Second Defendant

+

The First Defendant did not appear and was not represented

+

Hearing dates: 23 (Reading), 24-26 January 2023

+

- - - - - - - - - - - - - - - - - - - - -

+

Approved Judgment

+

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

+

.............................

+

HH JUDGE DAVIS-WHITE KC (SITTING AS A JUDGE OF THE CHANCERY DIVISION)

+

This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30am on 13 February 2023/

+ + + + + + + +
+If this Transcript is to be reported or published, there is a requirement to ensure that no reporting restriction will be breached. This is particularly important in relation to any case involving a sexual offence, where the victim is guaranteed lifetime anonymity (Sexual Offences (Amendment) Act 1992), or where an order has been made in relation to a young person +
+

This Transcript is Crown Copyright.  It may not be reproduced in whole or in part other than in accordance with relevant licence or with the express consent of the Authority.  All rights are reserved.

+
+
+ + + + +

HH Judge Davis-White KC :

+ + + +1. + +

The trial before me of the Part 8 claim form in this matter concerns a short point of statutory construction. Put broadly, it is whether one of the conditions for transitional tax relief under the Finance Act 2004 applies in the circumstances of this case to a pension that the First Defendant would like to take under the pension scheme that applies to him.

+ + + +2. + +

The Claimant is the Devon and Somerset Fire and Rescue Authority (the “Claimant” or the “Fire Authority”). It is a body corporate established by The Devon and Somerset Fire and Rescue Authority (Combination Scheme) Order 2006 (SI/No 2790 of 2006).

+ + + +3. + +

The Fire Authority is also a relevant “fire and rescue authority” for the purposes of the Firemen’s Pension Scheme Order 1992 (SI No. 129 of 1992) (the “FPSO”). The FPSO, in broad terms, sets up a pension scheme for the benefit of (among others) “fire fighters, their spouses and civil partners and dependents” (see FPSO, Schedule 2, rule A3(1)) (the “Scheme”). The Scheme is set out in Schedule 2 to FPSO. For the remainder of this judgment, I refer to the relevant rules of the Scheme by reference to FPSO without necessarily identifying the schedule of FPSO. The Fire Authority has various responsibilities, duties and discretions under the Rules in FPSO.

+ + + +4. + +

Although described before me and in the heading to the court documents as “trustee” there is a dispute between the parties as to whether the Fire Authority is a trustee of the Scheme in the true sense of that term. On the limited material before me and submissions made to me, there is a real question as to whether the Fire Authority actually holds any trust property (rather than making records in its books of account as to sums received and sums expended in relation to the Scheme). As I go on to explain, that is but one dispute among a number that I do not consider that I need to resolve for the purposes of determining the real matter in issue between the parties.

+ + + +5. + +

The Fire Authority was represented before me by Ms Harriet Brown.

+ + + +6. + +

The Fire Authority employs the First Defendant, Mr Lee Howell. He is currently the Chief Fire Officer of the Authority. It is accepted that the Scheme applies to him. The question before me concerns the application of relevant transitional provisions of the Finance Act 2004 to his pension rights under his employment contract and the terms of FPSO. The question of transitional provisions arises because the Finance Act 2004 raised the age at which pensions could be taken on retirement without losing certain favourable tax conditions.

+ + + +7. + +

Mr Howell was present in court to observe the hearing before me but was not represented and did not formally take part in the hearing.

+ + + +8. + +

The Second Defendant, the Commissioners for His Majesty’s Revenue, were represented by Mr Simon Oakes. For convenience I refer to them in this judgment as “HMRC”.

+ + + +9. + +

I am grateful to Ms Brown and Mr Oakes for their helpful submissions, both oral and written. Ms Brown provided two skeleton arguments and a written note. Mr Oakes also provided two skeleton arguments.

+ + + + +

The issue

+ + + +10. + +

Before turning to the specific facts relating to Mr Howell’s position, it is necessary to explain the relevant terms of the Finance Act 2004 and the relevant terms of FPSO.

+ + + +11. + +

The Finance Act 2004 (“FA 2004”) had the effect of simplifying the favourable tax regime applicable to pensions. A number of separate tax regimes for different types of scheme were brought within the umbrella of one type of scheme, the “registered” pension scheme. In particular, under the FA 2004 “registered” pension schemes are subject to a favourable tax regime. The FA 2004 also incorporates the concept of the normal minimum pension age (NMPA), which is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge, unless they are retiring due to ill-health. The NMPA took effect in April 2006. It was increased from age 50 to age 55 with effect from 2010. It will increase to age 57 (for most persons) on 6 April 2028. The increase to age 57 will not apply to members of the various firefighters, police and armed forces public service pension schemes (commonly referred to as uniformed services pension schemes). Each increase has sought to protect certain rights accrued before the date from which the minimum age increases.

+ + + +12. + +

The question in this case is whether in April 2006, Mr Howell had relevant rights which are protected under the transitional provisions contained in Schedule FA 2004. If his rights are protected then payment of his pension may be made to him without suffering tax charges. If they are not protected then a number of tax charges may arise if he receives pension payments before the age of 55.

+ + + + +

Relevant provisions of the Finance Act 2004

+ + + +13. + +

The starting point is that under section 160 FA 2004, the only payments which a registered pension scheme is authorised to make to, or in respect of a member of the scheme, are those specified in section 164 FA 2004. In the extracts from the FA 2004 that I set out in this judgment, I have indicated amendments made by square brackets. I am satisfied that the changes made do not affect or assist in the exercise of statutory interpretation that I have to carry out.

+ + + +14. + +

Sections 160(1) and (2) FA 2004 (as amended) provide:-

+ + +“160 + +

Payments by registered pension schemes

+ + +(1) + +

The only payments which a registered pension scheme is authorised to make to or in respect of a [person who is or has been a] member of the pension scheme are those specified in section 164.

+ + + + +(2) + +

In this Part “unauthorised member payment” means—

+ + + +

(a) a payment by a registered pension scheme to or in respect of a [person who is or has been a] member of the pension scheme which is not authorised by section 164, and

+ + + + +

(b) anything which is to be treated as an unauthorised payment to or in respect of a [person who is or has been a] member of the pension scheme under [this Part].”

+ + + + + +15. + +

Section 164(1) FA 2004 (as amended) provides:

+ + + +

““164 Authorised member payments

+ + + + +

[(1)]The only payments a registered pension scheme is authorised to make to or in respect of a [person who is or has been a] member of the pension scheme are—

+ + + +

(a) pensions permitted by the pension rules or the pension death benefit rules [to be paid to or in respect of a member] (see sections 165 and 167),

+ + + + +

(b) lump sums permitted by the lump sum rule or the lump sum death benefit rule [to be paid to or in respect of a member] (see sections 166 and 168),

+ + + + + +

(c) recognised transfers (see section 169),

+ + + + +

(d) scheme administration member payments (see section 171),

+ + + + +

(e) payments pursuant to a pension sharing order or provision, and

+ + + +

(f) payments of a description prescribed by regulations made by the Board of Inland Revenue.”

+ + + + + +16. + +

As I have said, the FA 2004, raised the minimum normal pension age from 50 to 55. Section 165 FA 2004 provides a number of “pension rules”. As regards this case, the first pension rule is the relevant one. In this respect, section 165 FA 2004 provides:

+ + +“165 + +

Pension rules

+ + +(1) + +

These are the rules relating to the payment of pensions by a registered pension scheme to a member of the pension scheme (“the pension rules”).

+ + + + +

Pension rule 1

+ + + +

No payment of pension may be made before the day on which the member reaches normal minimum pension age, unless the ill-health condition was met immediately before the member became entitled to a pension under the pension scheme.”

+ + + + + + +17. + +

Normal minimum pension age is defined by section 279(1)) FA 2004 as follows:

+ + +“279 + +

Other definitions

+ + +(1) + +

In this Part—

+ + + + +

[“normal minimum pension age” means—

+ + + +

(a) in relation to, and to a member of, a pension scheme that is not a uniformed services pension scheme—

+ + + + +

(i) before 6 April 2010, 50,

+ + + + +

(ii) on and after that date but before 6 April 2028, 55, and

+ + + + +

(iii) on and after 6 April 2028, 57, and

+ + + +

(b) in relation to, and to a member of, a uniformed services pension scheme—

+ + + + + +

(i)before 6 April 2010, 50, and

+ + + + +

(ii)on and after that date, 55,]

+ + + + +

[(4) In this section “uniformed services pension scheme” means a pension scheme that—

+ + + +

(a) is established by or under an enactment or Royal Warrant for the benefit of persons described in subsection (5) (whether or not other persons may be members of such a scheme), or

+ + + + +

(b) is established solely for the receipt of additional voluntary contributions from members of a scheme falling within paragraph (a),

+ + + + + +

subject to any regulations made under subsection (6).

+ + + + +(5) + +

Those persons are persons who are or were—

+ + + +

(a) members of the naval, military or air forces of the Crown (including members of any reserve force);

+ + + + +

(b) members of a police force other than the Civil Nuclear Constabulary;

+ + + + +

(c) firefighters.”

+ + + + + + +18. + +

In the event that a pension payment is made that is not “authorised”, then unfavourable tax consequences follow. Under section 208 FA 2004 an unauthorised payments charge, being a charge to income tax of 40% on the payment falling on the recipient of the payment, will arise. Under sections 209-210 FA 2004, an unauthorised payments surcharge of 15% may arise, chargeable to the recipient of the relevant payment. The surcharge arises on a calculated basis depending on the proportion that the unauthorised payments made within a specified period bear to the member’s “crystallised” and “uncrystallised” rights (in each case valued according to a methodology set out in the FA 2004). Finally, under sections 239 and following sections a scheme sanction charge, being a charge to income tax, may fall on the scheme administrator where in any tax year one or more scheme chargeable payments are made by a registered scheme. There are other potential consequences of making unauthorised payments under section 242 FA 2004.

+ + + +19. + +

As I shall go on to explain, Mr Howell now wishes to take his pension under FPSO before the age of 55. The Claimant is not prepared to pay such a pension if it is “unauthorised” such that payment would raise the reality or possibility of the unfavourable tax consequences of such an unauthorised payment. The question is therefore whether the transitional provisions set out in Schedule 36 apply so as to prevent this consequence.

+ + + +20. + +

Section 160(9) FA 2004 refers in terms to transitional provisions being contained in Schedule 36 parts 3 and 4. Section 283 FA 2004 also provides that Schedule 36 contains various transitional and savings provisions.

+ + + +21. + +

Schedule 36 to the FA 2004, Part 3 deals with the position of “Pre-commencement benefit rights”. Paragraph 21 provides (among other things) that if paragraph 21 applies in relation to a registered pension scheme and a member of the pension scheme, then save in respect of two provisions, the relevant part of the 2004 Act containing the provisions that I have dealt with, has effect as if references to “normal minimum pension age” were references to “the member’s protected pension age”. Where the relevant conditions spelled out in paragraph 21 apply, then the member’s protected pension age is the age from which the member had “an actual or prospective right to any benefit under the protected pension scheme on 5 April 2006, or, where condition B is met, under the original pension scheme on that date” (see paragraph 22(8)). However the paragraph does not operate so as to give the member a protected pension age of more than 50 at any time before 6 April 2010 (see paragraph 22(9)).

+ + + +22. + +

The pension sought to be taken by Mr Howell in this case is one that he seeks payment of before he attains the age of 55. For convenience I refer to this as an “early pension”, meaning a pension taken before what would be the normal minimum pension age, for him, of 55 years.

+ + + +23. + +

As will be seen, paragraph 22 will apply where a pension scheme is a “protected pension scheme” and “the retirement condition is met in relation to the member and the pension scheme” (paragraph 22(1).

+ + + +24. + +

To be a “protected pension scheme”, conditions A or B have to be met (paragraph 22(2)). Condition B does not apply in this case. It relates to block transfers between pension schemes. Condition A requires two conditions to be met. The first is that the pension scheme falls within any of the categories of pension scheme which became registered pension schemes on 6 April 2006 as set out in paragraph 1(1) of the Schedule. That condition is met here. The second condition is that “the entitlement condition” is met in relation to the member and the pension scheme (paragraph 22(3)). The “entitlement condition” contains three elements: (a) on 5 April 2006, the member must have had an “actual or prospective right under the pension scheme to any benefit from an age of less than 55” ; (b) the rules of the pension scheme on 10 December 2003, must have included provision conferring such a right on some or all of the persons who were then members of the scheme and (c) such a right must then have been conferred on the member or would have been if he or she had been a member of the scheme on that date. It is condition (a) of the entitlement condition which arises in this case and where there is a dispute as to whether it does or does not apply. Elements (b) and (c) of the entitlement condition are met in this case.

+ + + +25. + +

As regards the “retirement condition”, there is a dispute as to whether I should make any determination as to the construction of the relevant paragraphs or their effect in the current factual situation. Two conditions apply. First the member must become entitled to all the benefits payable to him (or her) under arrangements under the scheme (to which he did not have actual entitlement on or before 5 April 2006) on the same date. Secondly, in a case where on 5 April 2006 the member had an actual or prospective right under the pension scheme to any benefit from an age of less than 50, condition 1 must be met or, in any other case, condition 2 or 3 must be met. Conditions 1 to 3 relate to requirements that the member is not employed by certain types of employer after he or she becomes entitled to all the relevant benefits and that the becoming entitled to the benefits must not be a part of an arrangement the main, or one of the main purposes, is to avoid tax or national insurance contributions.

+ + + +26. + +

Paragraph 22 of Schedule 36 provides as follows. I have put in bold the main provision which was in issue before me:

+ + +“22(1) + +

This paragraph applies in relation to a registered pension scheme and a member of the pension scheme if—

+ + + + +

(a) the pension scheme is a protected pension scheme, and

+ + + +

(b) the retirement condition is met in relation to the member and the pension scheme.

+ + + + +(2) + +

A pension scheme is a protected pension scheme if condition A or condition B is met.

+ + + +(3) + +

Condition A is met if—

+ + + +

(a) the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and

+ + + + +

(b) the entitlement condition is met in relation to the member and the pension scheme.

+ + + +(4) + +

The entitlement condition is met in relation to the member and the pension scheme if—

+ + + +

(a) on 5th April 2006 the member had an actual or prospective right under the pension scheme to [any benefit] from an age of less than 55,

+ + + + +

(b) the rules of the pension scheme on 10th December 2003 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and

+ + + + +

(c) such a right either was then conferred on the member or would have been had the member been a member of the scheme on that date.

+ + + + +(5) + +

Condition B is met if the member is a member of the pension scheme [(“a transferee pension scheme”) as a result of—

+ + + +

(a) a block transfer from the pension scheme (“the original pension scheme”) in relation to which condition A is met to the transferee pension scheme, or

+ + + + +

(b) a block transfer to the transferee pension scheme from a pension scheme that was a transferee pension scheme in relation to the original pension scheme by virtue of the previous application of paragraph (a) or the previous application (on one or more occasions) of this paragraph.]

+ + + + + +(6) + +

A transfer is a block transfer if….

+ + + + +

[(6A) A transfer is also a block transfer if…

+ + +(7) + +

The retirement condition is met in relation to the member and the pension scheme if—

+ + + +

(a) the member becomes entitled to all the [benefits] payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date, and

+ + + + +

[(b) in a case where on 5th April 2006 the member had an actual or prospective right under the pension scheme to any benefit from an age of less than 50, Condition 1 is met or, in any other case, Condition 2 or 3 is met.]

+ + + + + + +

[(7A) Condition 1 is met if—

+ + + +

(a) the member is not, after becoming entitled to the benefits mentioned in sub-paragraph (7)(a), employed by a person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected, and

+ + + + +

(b) the member's becoming entitled to those benefits is not part of an arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

+ + + + + +

(7B) Condition 2 is met if—

+ + + +

(a) the member is not, after becoming entitled to the benefits mentioned in sub- paragraph (7)(a), employed by a person specified in sub-paragraph (7C), and

+ + + + +

(b) the member's becoming entitled to those benefits is not part of an arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions.

+ + + + + +

(7C) The persons referred to in sub-paragraph (7B)(a) are—

+ + + +

(a) any person who was a sponsoring employer in relation to the pension scheme at any time during the period of six months ending with the day on which the member became entitled to the benefits mentioned in sub-paragraph (7)(a) and by whom the member was employed at any time during that period,

+ + + + +

(b) any person who is connected with any such person, or

+ + + +

(c) any person who is a sponsoring employer in relation to the pension scheme and with whom the member is connected.

+ + + + + +

(7D) If the member has become entitled to the benefits payable under arrangements under the pension scheme by reason of service in the armed forces of the Crown, any employment on compulsory recall is to be disregarded for the purposes of sub-paragraph (7B)(a).

+ + + + + +

(7E) Condition 3 is met if —

+ + + +

(a) paragraph (a) of sub-paragraph (7B) is not satisfied but one of the re-employment conditions is met, and

+ + + + +

(b) paragraph (b) of that sub-paragraph is satisfied.

+ + + + + +

(7F) The re-employment conditions are—

+ + + +

(a) that the member is not employed as mentioned in sub-paragraph (7B)(a) during the period of six months beginning with the day on which the member becomes entitled to the benefits mentioned in sub-paragraph (7)(a), and

+ + + + +

(b) that the member is not employed as mentioned in sub-paragraph (7B)(a) during the period of one month beginning with that day, but is so employed during the period of five months beginning at the end of that period, and either the pension abatement condition or the materially different employment condition is met [, and

+ + + + +

(c) that the member is or was employed as mentioned in sub-paragraph (7B)(a) where—

+ + + +

(i) the employment began at any time during the coronavirus period, and

+ + + + +

(ii) the only or main reason that the member was taken into employment was to help the employer to respond to the public health, social, economic or other effects of coronavirus.]

+ + + + + + +

(7G) The pension abatement condition is met if—

+ + + +

(a) the pension scheme is a public service pension scheme, and

+ + + +

(b) the member's benefits under the scheme consist of or include a scheme pension which is liable to reduction by abatement while the member is employed as mentioned in sub-paragraph (7B)(a) and is under the age of 55.

+ + + + + + +

(7H) The materially different employment condition is met—

+ + + +

(a) in a case where the member is employed as mentioned in sub-paragraph (7B)(a) in more than one employment during the period of five months mentioned in sub-paragraph (7F)(b), if each of those employments, and

+ + + + +

(b) otherwise, if the employment in which the member is so employed during that period, is materially different in nature from the employment in which the member was employed immediately before becoming entitled to the benefits mentioned in sub-paragraph (7)(a).

+ + + + +

(7I) For the purposes of sub-paragraph (7D) “employment on compulsory recall” means permanent service—

+ + + + +

(a) under Part 4 of the Reserve Forces Act 1996,

+ + + + +

(b) under Part 5 of that Act,

+ + + + +

(c) under a call-out or recall order made under that Act,

+ + + +

(d) having been called out or recalled under the Reserve Forces Act 1980, or

+ + + + + +

(e) because of any other call-out or recall obligation of an officer.

+ + + + +

(7J) [Section 1122 of the Corporation Tax Act 2010] (connected persons) applies for the purposes of this paragraph.]

+ + + + + +

[(7K) In sub-paragraph (7F)(c)—

+ + + +

“coronavirus” has the same meaning as in the Coronavirus Act 2020 (see section 1(1) of that Act);

+ + + + +

“the coronavirus period” means the period beginning with 1 March 2020 and ending with 1 November 2020.

+ + + + +

(7L) The Treasury may by regulations amend the definition of “the coronavirus period” in sub-paragraph (7K) so as to replace the later of the dates specified in it with another date falling before 6 April 2021.

+ + + + +

(7M) The power in sub-paragraph (7L) may be exercised on more than one occasion.]

+ + + +(8) + +

The member’s protected pension age is the age from which the member had an actual or prospective right to [any benefit] under the protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).

+ + + +(9) + +

But this paragraph does not have effect so as to give the member a protected pension age of more than 50 at any time before 6th April 2010.”

+ + + + + + +

Relevant Provisions of Firemen’s Pension Scheme Order 1992

+ + + +27. + +

The immediately relevant provisions of FPSO +

Applicable in England. There are now different provisions of the SI applying to each of England, Scotland and Wales.

+ that I was referred to as applying to Mr Howell are those of the pension scheme itself as set out in Schedule 2 to the statutory instrument. They were A3 (dealing with the persons to whom the Scheme applies), A13 (setting out the normal pension age of 55) and B1 setting out an entitlement to take an ordinary pension at the age of 50 (calculated in accordance with Part 1 of Schedule 2) in certain cases of long service. That entitlement will not apply in certain circumstances whose existence can only be determined in connection with or at or shortly before actual retirement. For present purposes, the key condition is that the entitlement to a pension at the age of 50 will not apply to a Chief Fire Officer, if the Chief Fire Officer retires before the age of 55, unless notice of retirement was given with the permission of the fire and rescue authority.

+ + + +28. + +

The short issue is whether or not any such entitlement of the CFO prior to notice of retirement being given is, as Ms Brown submits, an “actual” or “prospective” right to such benefit within the meaning of paragraph 22 of Schedule 36 FA 2004 or, as Mr Oakes submits, neither an “actual” nor a “prospective” right because it is dependent on a third party giving a relevant consent or permission before the right to a pension can come into being, such consent/permission being that of the claimant to the relevant notice of retirement being given. In what follows, the extracts from FPSO are those in force as at 5 April 2006.

+ + + +29. + +

The issue is whether or not relevant rights were held by Mr Howell as at 6 April 2006 and therefore the version of the statutory instrument that applied at that time to Mr Howell. In what follows I have used the version said to ave been in force by Westlaw which also shows, by square brackets amendments from the SI as originally enacted.

+ + + +30. + +

A3 of Schedule 2 to FPOS provided:

+ + + +

“A3 Exclusive application to regular firefighters

+ + + +

(1)    Subject to [paragraphs (3) and (4)] , this Scheme applies in relation to regular firefighters and their spouses [ or civil partners] and dependants to the exclusion of pension provision under any enactment other than section 26 of the principal Act and the Social Security Act 1975.

+ + + +(2) + +

In paragraph (1) “pension provision” means any provision for the payment of a pension, allowance or gratuity, on cessation of employment or on death, in respect of employment as a regular firefighter.

+ + + +(3) + +

A person who is not [an employee of a fire and rescue authority] but whose employment is, under rule A4 or A5, treated for the purposes of this Scheme as employment as a regular firefighter is not a regular firefighter for the purposes of this rule.

+ + + + +

[ (4) Nothing in this rule prevents provision being made by this Scheme in respect of pension credit members. ] A13 of Schedule 2 to FPOS provides:

+ + + + + +31. + +

A13 of Schedule 2 to FPOS provided:

+ + + +

“[A13. Normal pension age

+ + + + +

The normal pension age of employees of a fire and rescue authority appointed on terms under which they are or may be required to engage in fire-fighting is 55.]”

+ + + + +32. + +

B1 of Schedule 2 to FPOS provided:

+ + + +

“B1.— Ordinary pension

+ + +(1) + +

Subject to paragraph (2), this rule applies to a regular firefighter who retires if he then—

+ + + + +

(a) has attained the age of 50, and

+ + + +

(b) is entitled to reckon at least 25 years' pensionable service, and (c) does not become entitled to an ill-health award under rule B3.

+ + + + +(2) + +

This rule does not apply—

+ + + +

(a) to a person whose notice of retirement states that he is retiring for the purpose of [taking up employment with another fire and rescue authority], or

+ + + + +

(b) unless his notice of retirement was given with the permission of the [fire and rescue authority], to a [chief fire officer]…. who retires before attaining the age of 55, or

+ + + + +

(c) where immediately before the person's retirement an election under rule G3 not to pay pension contributions had effect.

+ + + + +(3) + +

A person to whom this rule applies becomes entitled on retiring to an ordinary pension calculated in accordance with Part I of Schedule 2.”

+ + + + + + +

The Facts

+ + + +33. + +

Unfortunately, the parties were unable to agree, as directed, a statement of facts and issues. Somewhat unusually, the parties rather than awaiting or seeking a relevant court order, decided that they would adopt the route of having “particulars of claim” and a defence (rather than, if ordered by the court, points of claim and points of defence) in these part 8 proceedings. The status of these statements of case is somewhat uncertain. Written witness evidence was served and HMRC agreed that there should be no cross-examination nor any disclosure. In its defence, HMRC in large point put the claimant to proof of the facts as pleaded. In reaching trial, HMRC sought to maintain the position that certain of the facts were not proved but that HMRC was prepared to accept the facts for the purposes of the hearing before me only.

+ + + +34. + +

In my judgment, HMRC’s initial stance regarding the facts was misguided. This was the trial of the Part 8 claim. There was written evidence filed. If not contested then the facts set out in that witness evidence would be facts that the court would be able to, and would be likely to, find. Once those facts were found they would bind HMRC and the other parties, not just for the hearing but thereafter.

+ + + +35. + +

I understood Mr Oakes ultimately to accept:-

+ + +(1) + +

that in the material respects set out below, there was uncontested evidence before me justifying the findings of fact which I set out below.

+ + + +(2) + +

that in reality HMRC were contesting the construction put upon the FA 2004 relied upon by the Claimant and/or some of the asserted facts put forward by Ms Brown without any supporting evidence.

+ + + + +36. + +

However, Ms Brown was also not prepared to agree certain facts that HMRC wished to rely upon. Again, when tested, Ms Brown ultimately accepted (as I understood it) that the relevant facts set out below were either agreed or that it was open to me on the evidence to make findings of fact regarding the same and that her client ultimately did not dispute the same.

+ + + +37. + +

The key facts that I find as applying in this case are therefore as follows. They are in part taken from a draft statement of facts that the parties were unable to agree and in part from the evidence before me, most pertinently, a witness statement of Mr Michael Pearson (“Mr Pearson”) dated 18 November 2021. Mr Pearson has been employed by the Fire Authority since 2007 and is currently its Director of Governance and Digital Services. He is also the Clerk to the Authority and the Monitoring Officer.

+ + + +38. + +

The Scheme is a registered pension scheme and a public service pension scheme under the FA 2004, section 150(2) and 150(3) respectively.

+ + + +39. + +

Firefighters employed by local authorities are eligible to join the Scheme.

+ + + +40. + +

Mr Howell is a chief fire officer within the meaning of paragraph B1 FPSO, with more than 25 years of pensionable service. He was appointed as a firefighter with Essex Fire and Rescue Service on 1 September 1988. He secured the rank of Chief Fire Officer with Suffolk Fire & Rescue Service on 1 December 2004. Mr Howell commenced in employment with the Claimant as chief fire officer on 10 January 2009. This was part way through the period of 25 years of pensionable service. He reached 25 years of pensionable service on 1 September 2013.

+ + + +41. + +

According to an Opinion of Ms Felicity Cullen KC (at the time QC) dated 18 March 2010 (Ms Cullen’s Opinion) (and I find), Mr Howell’s contract of employment with the claimant (subject to the letter referred to below): “contains the following terms covering retirement and pension provision:

+ + + +

"9. Retirement

+ + + +

Nominal Pension Age for members of the Firefighters' Pension Scheme is 55 with protection of certain benefits for those formerly with a compulsory retirement age of 60. For the New Firefighters' Pension Scheme the Normal Retirement Age is also 60. You are required to retire in accordance with the regulations of your pension scheme and no later than the day before your 65th birthday.

+ + + + +10. + +

Pension Scheme

+ + + +

The Firefighters' Pension Scheme and the New Firefighters' Pension Scheme are administered on behalf of DSFRS by Devon Pensions Services. If you are a member of either of these pension schemes then you will be able to transfer your membership to the Service. The Firefighters' Pension Scheme and the New Firefighters' Pension Scheme are contracted out of the State Second Pension Scheme (S2P) which used to be called the State Earnings Related Pension Scheme. Further details on the scheme can be found on the DCLG website.”

+ + + + + +42. + +

Doubts having arisen as to how the transitional provisions under the FA 2004 that I have outlined operated, the matter was submitted to Ms Cullen KC for her opinion. The relevant background was described by her as follows:

+ + +“3. + +

The CFO is concerned about the potential effect of changes in pensions tax legislation with effect from 6 April 2010 and has asked DSFRS to consider including within the Contract a clause permitting him to retire at age 50 in 2019.

+ + + +4. + +

DSFRS is willing to consider this request but is concerned at the possibility of becoming subject to scheme sanction charges under the provisions of Part 4 FA 2004. I have been asked to advise on the potential liabilities to scheme sanction charges which may arise as a result of changes to the Contract. It has been specifically agreed that my advice will be limited to the relevant tax points and I am not required to consider the contractual and possible employment law issues raised in my letter of instruction.”

+ + + + +43. + +

The main part of her opinion is a discussion as to whether the rights under FPSO paragraph B1 are rights which are “actual or prospective” within the meaning of paragraph 22(4)(a), Schedule 36 FA 2004. Her conclusion was as follows:

+ + + +

“In conclusion, it is my view that, on a proper construction of para.22 Schedule 36 FA 2004, the CFO is, in principle, entitled to benefit from a protected pension age of 50. The retirement condition (or any further requirements resulting from any changes in law) will have to be satisfied at the appropriate time if protection is to be available in fact. HMRC's Manuals indicate, however, that it may well take a different view to my own and this cannot, as a matter of practice be ignored.”

+ + + + +44. + +

The position of HMRC, as identified by Ms Cullen, reflects their position before me in this case. As she set out:

+ + +“21. + +

The key issue in relation to the condition in para.22(4)(a) Schedule 36 FA 2004 is whether a right which is, on its face, qualified in the sense that it is conditional on "permission" (the term used in Rule B1.(2) of the FPS), can be construed as being an actual or prospective right. HMRC thinks not: in its Manuals at RPSM 03106020, in describing the protected pension age requirements relating to rights to take benefits under age 55, it states that "the rights must be unqualified (in that no other party need consent to the individual's right before it becomes binding on the scheme or contract holder)." It is my view that a requirement for permission and a requirement for consent (the term used in RPSM 03106020) are indistinguishable for these purposes. Reference should also be made to RPSM 03106025.*

+ + + + +

* In RPSM 03106025 HMRC states as follows:

+ + + +

"Some rules give members an unqualified right to take benefits but only when certain conditions are met. If an individual meets the conditions providing the unqualified right to take benefits before age 55 they will have a protected pension age."

+ + + + +

An example is then given relating to redundancy, but it may be possible to infer that a consent condition can become unqualified by the giving of consent or permission.”

+ + + + + +45. + +

In paragraph 17 of the Defence, HMRC’s position is stated shortly:

+ + + +

“17…..

+ + +(a) + +

It is admitted that paragraph 22 of FA 2004, Schedule 36, Part 3 requires an ‘actual or prospective right’;

+ + + +(b) + +

However, as to paragraphs 3.11.1, 3.11.2 and 3.11.4, it is denied that the 1st Defendant had, at the relevant time, an actual or prospective right: any entitlement to an early retirement pension was entirely dependent upon a 3rd party (the fire and rescue authority) giving, in the future, consent to early retirement (via the mechanism of an early retirement notice) – which consent might, or might not, be given;”

+ + + + + +46. + +

Before me, Ms Brown also referred to PTM062210 which goes on to explain what HMRC means by an unqualified right:

+ + + +

“To have a protected pension age the member must have had the right to take benefits before normal minimum pension age. That is not the ability to take benefits, but an unqualified right.

+ + + + +

An individual has an unqualified right to take benefits if they do not need the consent of anybody before they can take their benefits. If the scheme documentation states that the consent of the trustees or employer is required to take benefits the member does not have an unqualified right to take benefits.

+ + + + +

(It does not matter that the trustees have always operated their discretion to allow the payment of early benefits, the right is still not an unqualified right.)

+ + + + +

For example, on 10 December 2003 a scheme may give its members an unqualified right to take pension benefits before age 55, but only if they are active members. Deferred members may take benefits before age 55 but only with the consent of the trustees or the employer. The active members as at 5 April 2006 who were also active members on 10 December 2003 or who joined the scheme after that date therefore have a protected pension age but the deferred members do not. On or after 6 April 2006, the employer decides that it will close its defined benefits section in the scheme and instead in future will provide benefits on a defined contributions basis in a new section of the existing scheme. As a result, those members who were active members of the defined benefits section on 5 April 2006 become deferred members of that section and active members of the defined contributions section (with a reserved right, qualified or unqualified) to take benefits before age 55. However, these members still retain their protected pension age as this is unaffected by any changes in scheme rules made from 6 April 2006 onwards. So, they are still able to take their benefits before age 55 after 2010 provided that consent to taking the deferred benefits (and their defined contribution section benefits if the right to them is qualified) is given and that they become entitled to all their scheme benefits under both the defined benefits and defined contributions sections on the same date

+ + + + +

(Emphasis added by Ms Brown).

+ + + + +47. + +

Following receipt of Ms Cullen’s opinion, by letter dated 31 March 2010, the Claimant proposed an amendment of Mr Howell’s contract of employment, which he accepted on or about 16 April 2010. Having cited the provision regarding retirement that I have set out earlier, the claimant’s letter went on to say:

+ + + +

“In accordance with the Firefighters’ Pension Scheme 1992, the Devon & Somerset Fire & Rescue Authority have given permission for you to submit notice of your intention to retire from age 50 subject to the following:

+ + +1. + +

You being entitled at that time to reckon at least 25 years’ pensionable service; AND

+ + + +2. + +

Subject to your not becoming entitled to an ill-health award under Rule B3 of the Scheme; AND

+ + + +3. + +

Your notice of retirement not indicating that you intend to retire for the purpose of taking up employment with another fire and rescue service; AND

+ + + +4. + +

Any pensions benefit payable before the age of 55 not representing an unauthorised payment as defined in the Finance Act 2004.”

+ + + + + +48. + +

Two points can be made about this letter. First, the permission to submit a notice of intention to retire from age 50 was dependent on any pensions benefit payable before the age of 55 not representing an unauthorised payment. Secondly, if HMRC are correct on their construction of the relevant transitional provisions of schedule 36 FA 2004 as applied to the Scheme, this letter was too late to remove the need for any consent so as to make any right to an early pension (payable prior to the age of 55) not subject to consent or permission of any third party. On HMRC’s case, the condition would have to have been met back on 5 April 2006.

+ + + +49. + +

The claimant is willing to make payments by way of pension to Mr Howell, prior to him reaching 55 but provided that such payments do not amount to unauthorised payments as defined by the provisions of the FA 2004 that I have set out earlier in this judgment.

+ + + + +

The issues

+ + + +50. + +

Unfortunately the parties were also unable to agree a formulation of the issues that the court was being asked to decide.

+ + +(a) + +

The key issue: paragraph 22(4)(a) sch 36 FA 2004: the entitlement condition: “actual or prospective right to benefits from an age of less than 55 as at 5 April 2006”

+ + + + +51. + +

The parties were agreed that the key issue was the application of the transitional provisions under Schedule 36 FA 2004 to the situation concerning Mr Howell and in particular the issue of whether or not within the meaning of paragraph 22 of Schedule 36 as at 5 April 2006 he had an “actual” or “prospective” right to benefits under the Scheme from an age of less than 55. The precise formulation of any appropriate declaration remained in issue. The issue as to formulation of the declaration was one that I considered should properly be considered after my judgment on the key issue.

+ + + +52. + +

I should add that a great deal of the written skeleton arguments was taken up with the issue of whether the court could or should make a declaration and if so on what jurisdictional basis. Some of this related to other relief apparently being sought by the Claimant, as I shall refer to later in this judgment. As regards declaratory relief in relation to the “entitlement condition” Ms Brown submitted that such relief should be granted to her as a trustee seeking directions. Mr Oakes submitted that Ms Brown’s client was not a trustee and therefore that any declaration could only be granted under the court’s general discretionary power and not in the context of its role in relation to trustees. At the end of the day, Mr Oakes (and as I understood it, Ms Brown) accepted that, even under the general jurisdiction of the court, there was both jurisdiction and, as a matter of discretion, it would be appropriate for the court to make a declaration regarding the point of law arising with regard to whether or not, on the facts, Mr Howell fulfils the “entitlement condition” of paragraph 22 of schedule 36, FA 2014. I need not therefore consider the question of the trustee status of the Claimant nor the general law relating to the grant of declaratory relief in that context any further.

+ + + +

(b)the “retirement condition” paragraph 22(7) Sch 36 FA 2004

+ + + + +53. + +

The second issue that surfaced during the hearing was whether or not the “retirement condition” was met. As I have pointed out, whether the retirement condition is met appears largely to depend upon future events. However, Ms Brown submitted that there were matters that were capable of being determined now. Her submission is that, first, all benefits payable under the Scheme will be payable at the same time, so that paragraph 22(7)(a) of schedule 36 FA 2004 is met. Secondly, she submits that paragraph 22(7)(b) does not apply in the circumstances here. That is because, she says, paragraph 22(7)(b) does not apply at all unless on 5 April 2006 Mr Howell had an actual or prospective right under the Scheme to any benefit from an age of less than 50. If he did then condition 1 has to be met and if it is not then conditions 2 or 3 have to be met.

+ + + +54. + +

Mr Oakes’ position was that HMRC had not come prepared to deal with this issue. As regards 22(7)(a), HMRC needed more time to consider the Scheme as a whole and the benefits potentially payable under it which might go wider than simply a pension at age 50. As regards paragraph 22(7)(b), he did not agree that as a matter of construction paragraph 7(b) was dealing solely with a situation where the member had, on 5 April 2006, an actual or prospective right to any benefit from an age of less than 50. Rather, if that was the case then condition 1 had to be met. If that was not the case (ie there was no such entitlement), then conditions 2 and condition 3 came into play and one at least had to be satisfied. The words “in any other case” were a reference to any other case than where on 5 April 2006 the member had the relevant right, not a reference to a case where, in such circumstances, condition one was not met. I note that Ms Cullen KC’s opinion seems to proceed on the basis put forward by Mr Oakes.

+ + + +55. + +

Ms Brown referred me to the particulars of claim and the defence. She said that the statements of case prevent HMRC from now raising a contrary case that the “retirement condition” is, or may, not be met. True it is that the particulars of claim assert, for example in paragraphs 3.7 and 3.8, that the “only point of concern” was whether paragraph 22(4) of schedule 36 FA 2004 applies and that the Claimant’s position was that the “other conditions” (that is of paragraph 22) are met. Further, the Defence simply “noted” these paragraphs. Nevertheless I am not satisfied that the Second Defendant is prevented from raising the issue. The hearing before me concentrated almost entirely upon the paragraph 22(4) point and the “entitlement” position. I heard very limited argument indeed on the retirement condition under paragraph 22(7), most of it directed to whether HMRC were prevented from denying the assertion that the condition was met. The hearing as it was overran its time estimate by a substantial margin. I do not consider that I should deal with the retirement condition issue without it being clearly formulated and relevant evidence and proper full submissions being made. If it is necessary to allow HMRC to amend their statement of case I would allow them to do so but I do not consider that it is. I would not be prepared to make any declaration in the particular circumstances based upon some form of pleading point that HMRC are not permitted to raise any counter arguments.

+ + + +56. + +

I will hear from counsel on hand down of this judgment whether these proceedings should be left alive to deal with the retirement condition on another day or whether the matter can be left to be dealt with (if it arises) in separate proceedings (subject to any Henderson v Henderson point).

+ + + +

(c)The trustee’s discretion: directions as to action to be taken

+ + + + +57. + +

As is clear to me from the statements of case and the draft list of issues, the key question before me was whether as a matter of law the “entitlement condition” was met (and more narrowly whether the first element of that condition was met). However, in her skeleton argument for the hearing, Mr Brown commenced by saying that the Claimant had applied for an order that it is able to and should make a payment to Mr Howell prior to his attaining the age of 55 (emphasis supplied). In fact directions as to what the claimant “should” do (and in particular whether it should make a payment even if it did amount to an unauthorised payment) had never been raised before. In her supplemental skeleton, Ms Brown suggested that the Claimant was seeking declaratory relief as to whether it would be within its powers to make a payment to Mr Howell before he attains the age of 55 without making provision for unauthorised payments. This again seemed to be relief relating to the scope of the Claimant’s powers and how it should exercise them.

+ + + +58. + +

As I understood it Ms Brown ultimately accepted that she was not seeking the directions of or declarations by the court as to what the Claimant should do (which would involve consideration of a lot more evidence than that which was before me and might involve the need for joinder of other persons to the extent that for example, the making of an unauthorised payment might have an effect upon the relevant Scheme). The Claimant really needs to know what the legal position in relation to the entitlement condition in the case of Mr Howell and will then have to consider what course it is appropriate for it to take. Its current position, as I understand it, is that it is not prepared to make an early payment of pension (ie before Mr Howell attains the age of 55) if that would be an unauthorised payment under FA 2004. I note however that, as I go on to explain later in this judgment, part of Ms Brown’s submissions seemed to be to the effect that the claimant had to make an early relevant payment in any event.

+ + + + +

(d) HMRC’s manual(s)

+ + + +59. + +

At one point it was, at the least, unclear whether it was being suggested that the court should grant some form of relief in relation to HMRC’s manual(s) which is/are said by the Claimant inaccurately to record the relevant law regarding the meaning and application of the “entitlement condition”. It was clarified that no relevant relief is being sought in this respect and I need say no more about it.

+ + + + +

Statutory construction and the meaning of legislation

+ + + +60. + +

In my judgment, I have to construe the meaning of the words “actual or prospective right to benefits” in paragraph 22 of Schedule 36 to the FA 2014 and to decide whether or not Mr Howell’s position falls within that provision.

+ + + +61. + +

I was referred to a number of cases about statutory construction. I set out a summary of my main conclusions drawn from those authorities.

+ + + +62. + +

In conducting statutory interpretation, the courts are “seeking the meaning of the words which Parliament used” and identifying the meaning borne by the words in question in the particular context in which they are used. The Court is not however to engage in a process of finding a meaning which is not justified by the words that Parliament has used, or which is selected for some reason other than the presumed intention of Parliament, such as the personal view of the judge (R(PRCBC) v Home Secretary [2022] UKSC 3 at [29], [59], [66]; Black-Clawson International Ltd v Papierwerke Waldhof-Aschffenburg AG [1975] AC 591, 613 Per Lord Reid; R v Secretary of State for the Environment Transport and the Regions, Ex P Spath Holme Ltd [2001] AC 349, 396).

+ + + +63. + +

Statutory interpretation involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey using the statutory words which are being considered. This means that, for example, the subjective intentions of the draftsman, the promoter, or individual members or even a majority of members are all irrelevant. Parliament’s “intention” in this context is the intention reasonably imputed to Parliament in respect of the language used (R(PRCBC) v Home Secretary at [31], [59]; Ex p Spath Holme Ltd at 396-7).

+ + + +64. + +

However, an expressed intention of a Government Minister may become relevant to ascertaining the objective intention of Parliament under the rule in Pepper v Hart.

+ + + +65. + +

Part of the context will be the statutory context, that is the section of the relevant piece of legislation as a whole and the wider context of the relevant group of sections. The statute as a whole may provide the relevant context. They are the words Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained (R(PRCBC) v Home Secretary at [29]).

+ + + +66. + +

Other external aids may cast light on the meaning of particular statutory provisions. As regards statements made in Parliament, a special rule applies referred to in shorthand as the rule in Pepper v Hart, being named after the case in which the House of Lords relaxed the rule that there could be no reference to such material ([1993] AC 593). I will deal with that rule separately. What follows is dealing with external aids (that is aids external to the statute itself) other than matters covered by the rule in Pepper v Hart.

+ + + +67. + +

External aids may cast light on the meaning of particular statutory provisions (for example Explanatory Notes to the legislation); disclose the background to a statute, the mischief it addresses and/or the purpose of the legislation thereby assisting in a purposive interpretation of a particular statutory provision (for example, Law Commission reports, Royal Commission reports, reports of advisory committees and Government White Papers ((R(PRCBC) v Home Secretary at [30]).

+ + + +68. + +

Such external aids may also reveal that the language of a statute, initially thought to be clear, is in fact ambiguous. They may then assist the court in ascertaining the true meaning of the statute (R(PRCBC) v Home Secretary at [29], [63], [67], [76]; Fothergill v Monarch Airlines Ltd [1981] AC 251 at 281).

+ + + +69. + +

The court is also able to rely upon a body of principles of construction and/or prima facie assumptions or presumptions (R(PRCBC) v Home Secretary at [29], [41], [43] and see discussion of examples of these at [34]-[40]).

+ + + +70. + +

The court will usually look at any external material drawn to its attention which properly throws light on the meaning of the words that Parliament has used. That may include language dictionaries and/or legal dictionaries. Further, other case law or other statute which uses similar language may be of assistance in understanding concepts or how meanings have been attributed to words in different contexts. Indeed, at least some legal dictionaries (as will language dictionaries) give examples of the meaning attributed to words and concepts in different contexts.

+ + + + +

Pepper v Hart

+ + + +71. + +

HMRC seek to support their contention as to the meaning of “actual and prospective” by referring to the statements made by a Government Minister, Ms Ruth Kelly MP, then Financial Secretary to the Treasury in Parliament during the passage of the then Finance Bill and which became FA 2004. These comments were made by her during the consideration of the then Finance Bill by the Standing Committee of the House of Commons, which considered the amendment which became paragraph 22 of Schedule 36 FA 2004.

+ + + +72. + +

Such references are not a legitimate aid to statutory interpretation unless the three conditions set out by Lord Brown-Wilkinson in Pepper v Hart [1993] AC 593, 640 are met. Those three conditions are: (1) that the legislative provision must be ambiguous, obscure or, on a conventional interpretation, lead to absurdity; (2) that the material must be or include one or more statements by a minister or other promoter of the Bill; and that (3) the statement must be clear and unequivocal on the point of interpretation which the court is considering, (see R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2022] UKSC 3; [2022] 2 WLR 343, per Lord Hodge DPSC at paragraph [32]).

+ + + +73. + +

There was a debate before me as to the meaning of “ambiguity” in this context. Ms Brown submitted that “ambiguous” meant something more than “capable of bearing more than one meaning”. In this respect she focussed upon the passage of the speech of Lord Browne-Wilkinson in Pepper v Hart as set out below (with her emphases):

+ + + +

“Statute law consists of the words that Parliament has enacted. It is for the courts to construe those words and it is the court's duty in so doing to give effect to the intention of Parliament in using those words. It is an inescapable fact that, despite all the care taken in passing legislation, some statutory provisions when applied to the circumstances under consideration in any specific case are found to be ambiguous. One of the reasons for such ambiguity is that the members of the legislature in enacting the statutory provision may have been told what result those words are intended to achieve. Faced with a given set of words which are capable of conveying that meaning it is not surprising if the words are accepted as having that meaning. Parliament never intends to enact an ambiguity. Contrast with that the position of the courts. The courts are faced simply with a set of words which are in fact capable of bearing two meanings. The courts are ignorant of the underlying Parliamentary purpose. Unless something in "other parts of the legislation discloses such purpose, the courts are forced to adopt one of the two possible meanings using highly technical rules of construction. In many, I suspect most, cases references to Parliamentary materials will not throw any light on the matter. But in a few cases it may emerge that the very question was considered by Parliament in passing the legislation. Why in such a case should the courts blind themselves to a clear indication of what Parliament intended in using those words? The court cannot attach a meaning to words which they cannot bear, but if the words are capable of bearing more than one meaning why should not Parliament's true intention be enforced rather than thwarted?”

+ + + + +74. + +

Ms Brown’s submission was that nowhere does Lord Browne-Wilkinson “explain that ambiguous means capable of bearing more than one meaning”. I have difficulty with that proposition. However, as I ultimately understood her submission, it was to the effect that if (without reference to the relevant Parliamentary statement sought to be adduced into evidence) relevant words used in a statute are words that the court considers to be capable of having more than one meaning (she would say “plausible meaning”) then the words will be “ambiguous” for the purposes of the rule in Pepper v Hart. In this case, she says, the relevant words are not ambiguous. If I am correct in my understanding then I do not consider Ms Brown’s submission to be contentious.

+ + + + +

The “entitlement condition”

+ + + +75. + +

Ms Brown’s submission is that the meaning of “actual or prospective right” is not ambiguous. She says that, as at 5 April 2006, Mr Howell had either an “actual” or a “prospective” right to benefits. She says that the meaning of “actual” and “prospective” is to be derived from dictionaries and are words of ordinary and wide meaning.

+ + + +76. + +

As regards dictionary definitions, Ms Brown relied upon the meanings set out in the Merriam-Webster Dictionary online as follows:

+ + +(1) + +

As regards “actual”:

+ + + + +

“1a: existing in fact or reality

+ + + +

actual events

+ + + + +

actual and imagined conditions

+ + + + + +

b: not false or apparent

+ + + +

actual costs

+ + + + + +

c

+ + + + +

—used for emphasis

+ + + + +

This is the actual room in which my grandfather was born.

+ + + + +

2: existing or occurring at the time

+ + + + +

caught in the actual commission of a crime”

+ + +(2) + +

As regards “prospective”:

+ + + +

1: relating to or effective in the future

+ + + + +

2a: likely to come about: EXPECTED

+ + + + +

the prospective benefits of this law

+ + + + +

b: likely to be or become

+ + + + +

a prospective mother

+ + + + + + +77. + +

The submissions of Ms Brown to some extent developed over time. As I understood it she formally retained her original submission set out in her first written skeleton argument that the rights of Mr Howell under the Scheme were either “actual” and/or “prospective” within the meaning of the entitlement condition. That is on the basis, she submits, that they existed or existed at the relevant time (2006) and/or they were effective in the future. Further, the rights could be both “real” (i.e. actual) and prospective.

+ + + +78. + +

In oral submission, she made clear that she did not push the case that the rights were “actual” very strongly and that she primarily asserted that the rights were prospective. That is because, although conditional, the rights to a pension were either “effective in the future” and/or “likely to come about”. Further, she submitted that it was either not clear that the Claimant would be in a position to refuse permission to an early retirement notice or even that it had no choice in the matter and that therefore the entitlement to an early pension was “likely”, if not inevitable, to come about.

+ + + +79. + +

She also submitted that on the true construction of the Scheme and rule B1, Mr Howell had an actual right to a pension prior to age 55 which was only defeasible by a condition subsequent (e.g. if permission of the Claimant to the retirement notice at the relevant time was not forthcoming).

+ + + +80. + +

Mr Oakes submitted that the relevant words of the entitlement condition required to be construed against the background of a consideration of:

+ + +(1) + +

the purpose of the legislation and the use of similar concepts in other relevant legislation. In particular, an “actual” right corresponds to an existing entitlement (usually denoting a pension in payment) and “prospective right” corresponds to an “accrued right” (denoting a current right to future payment but, in either event not a right which is conditional upon third party consent;

+ + + +(2) + +

the explanatory notes to what was the Finance Bill 2004 (the “Explanatory Notes”);

+ + + +(3) + +

A statement to the relevant standing committee made by the then Financial Secretary to the Treasury, Ms Ruth Kelly MP.

+ + + + +81. + +

The particular passage relied on as regards the Explanatory Notes is as follows:

+ + + +

“Paragraphs 20-22 protect the rights of two groups to take a pension at an age below 55 after 2010. The first group, dealt with in paragraph 21, has rights to retire at ages between 50 and 55 conferred or created by their employer in the context of an employment relationship via the occupational pension scheme. This right must be capable of being exercised by the employee or ex-employee unilaterally save only for the happening of any relevant contingency. Thus a right subject to any qualification such as “subject to trustee consent” would not be protected.”

+ + + + +82. + +

Paragraph 21 of what was then schedule 34 of the Finance Bill 2004 contained slightly different wording to that which eventually emerged in the Finance Act 2004 schedule 36. However, the general drift of the paragraph was entirely in line with the eventual form of paragraph 22 of Sch 36 FA 2004. Further, the “entitlement condition” in paragraph 21(2)(a) of the Bill mirrored that in paragraph 22 of schedule 36 FA 2014 in referring to the member having on 5 April 2006, an “actual or prospective right under the pension scheme to a pension from an age of less than 55”.

+ + + +83. + +

As regards the passage from Hansard, the context was the movement of government amendments nos. 521 to 524 to the Finance Bill 2004 during the course of the consideration of the Finance Bill 2004 by Standing Committee A on 22 June 2004. Those amendments related to what became paragraph 22 of schedule 36 to the FA 2004. Amendment 523 was as follows:

+ + + +

“schedule 34, page 475, leave out lines 1 to 8 and insert

+ + + +

'(a) on 5th April 2006 the member had an actual or prospective right under the pension scheme to a pension from an age of less than 55,

+ + + + +

(b) the rules of the pension scheme on 10th December 2003 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and

+ + + + +

(c) such a right either was then conferred on the member or would have been had the member been a member of the scheme on that date.'.[Ruth Kelly.]”

+ + + + + +84. + +

Amendment 523 was duly made in due course.

+ + + +85. + +

The provision that amendment 523 replaced in the Bill was the definition of the “entitlement condition”. Schedule 34, page 456 of the Bill at the bottom of the page started with the then draft entitlement condition which was: “22(2). The entitlement condition is-”. Lines 1 to 8 as replaced on page 475 of the Bill was to the following effect:

+ + + +

(a) in the case of a relevant statutory scheme as defined in section 611A of ICTA or a pension scheme treated by the Inland Revenue as if it were such a relevant statutory scheme, on 5th April 2006 the member had an actual or prospective right under the pension scheme to a pension from an age of less than 55, or

+ + + + +

(b) in any other case, the member had such a right under the pension scheme throughout the period beginning with 10th December 2003 and ending with 5th April 2006.”

+ + + + +86. + +

Speaking to the various amendments, the Financial Secretary to the Treasury said the following:

+ + + +

“Ruth Kelly: Pensions receive favourable tax treatment to encourage people to save for retirement. The deal between the Government and the pension saver is that that favourable tax treatment is conditional on using most of the savings built up in that way to generate retirement income, and not for other purposes. As part of the reform of tax rules for pensions, we intend to set the minimum age at which tax-privileged pensions can be drawn at 55 from 2010. That minimum benefit age will apply to all pensions that qualify for tax relief. Moving the minimum benefit age to 55 is not designed to prevent people from stopping work when they are younger than 55, if they can afford to do so using resources other than pensions, but they will not be able to use pensions built up with tax relief until the age of 55.

+ + + + +

It would, of course, be unfair to introduce such a change in a way that cut across people's contractual rights to take an occupational pension at an earlier age. People with such rights may well have planned for their future on that basis, or even taken redundancy from their employer in the expectation that their occupational pension would become payable before they reached the age of 55. Because of that, provisions in the schedule protect the rights of employees in occupational pension schemes to retire before 55, provided certain conditions are met: first, that the right was in place before 10 December 2003 and, secondly, that the right is an absolute right and not subject to any conditions such as the consent of the employer.

+ + + + +

Amendments Nos. 520 to 522 are tidying-up amendments that correct and clarify references to minimum pension age. Following representations on theDecember 2003 consultation document, we are now proposing a relaxation of the original proposals.

+ + + + +

Amendments Nos. 523 and 524 would extend the protection to individuals who join their occupational pension scheme after 10 December 2003 but before 6 April 2006 A-day. They will be able to retire at the scheme's minimum pension age or normal retirement age provided that on 10 December 2003 the occupational pension scheme offered such a date to all existing members.”

+ + + + +87. + +

As regards the rights that Mr Howell had under the Scheme as at April 2006, Mr Oakes submits that Mr Howell did not then have an actual or prospective right to a pension. The right would only come into being once permission of the Claimant was given.

+ + + +88. + +

Ms Brown made a number of points regarding the reliance of Mr Oakes on other statutory provisions and their interpretation by the courts, the reliance on the Explanatory Notes and the reliance on Hansard. I do not set them all out here but they included (at various stages) that there was no need to construe the relevant provisions of the FA 2004 which was clear and unambiguous, there was therefore no need to look at the Explanatory Notes and no ability to look at Hansard and the relevant statement of Ms Kelly MP, the statements in the Explanatory Notes and of Ms Kelly MP were themselves unclear and required to be construed and could not be relied upon in the exercise that I had to undertake and that other statutory provisions used other language and concepts and were therefore either not to be looked at or, having been looked at, provided no assistance. Finally, the provisions of rule B1 of Schedule 2 FPOS, did not fall within the description given by the Explanatory Notes or Ms Kelly MP as to the matters excluded from “actual or prospective rights”.

+ + + +89. + +

First of all, it seems to me that Ms Brown is wrong to say that the meaning of the relevant constituent elements of the entitlement condition can be determined simply by looking at a dictionary of the English language. I will come onto the meaning of “actual” separately but, leaving that aside, the “likelihood” of something happening, for the prospective test, is an uncertain test. One of the dictionary examples is a “prospective mother” but one can see that in some contexts that might be limited to a pregnant female whereas in others it might extend to a female who is hoping and planning to become pregnant. Clearly as at 2006 a firefighter who was, say 38 years old, might be said have a prospective right to a pension at some age, even that were contingent on the firefighter achieving the relevant pensionable age under the relevant scheme. Further, as well as what might be said to be naturally occurring contingencies, that right might be conditional on the firefighter not then taking up certain sorts of employment. Such a condition would be within the firefighters’ control. However, the more the contingencies depend not on actions of the firefighter or the occurrence of natural events, the more questionable it becomes as to whether the right is a “prospective” right. Further, if the test is “likelihood” does the answer depend on the factual position in relation to the individual concerned? If they are diagnosed with a condition in 2006 that at the time is likely to lead to death shortly and is incurable, but the firefighter in fact survives, would he not have had a prospective right as at 2006 on the basis that as regards him it was then very unlikely that he would survive to pension age?

+ + + +90. + +

Further, it is clear that in other areas of the law, “prospective” may be contrasted with “contingent” (see e.g. debts under the Insolvency Act 1986 and Stonegate Securities Ltd v Gregory [1980] 1 Ch 576 at 579E-F).

+ + + +91. + +

In short, it seems to me that the meaning of “actual or prospective right to benefits” is not one that can be answered solely by looking at a dictionary definition. In any event, as I go on to consider, the Explanatory Notes can, in my judgment, be relied upon to identify that there is indeed an ambiguity in the terms in question. I do not consider that the words are not capable of bearing the meaning that the Explanatory Notes give, that is one which excludes a right which is contingent on some third-party consent.

+ + + +92. + +

Ms Brown submitted that the court should first consider the meaning of the words and that if they are clear there is “no need to delve into the policy background”. However, that is to ignore the point that the courts have said that Explanatory Notes or background information may in fact identify an ambiguity in the language. Even if I am incorrect that the language is ambiguous, then the Explanatory Notes in this case fulfil exactly that function. I also reject Ms Brown’s submission that Explanatory Notes should not be taken into account, alternatively given no weight, on the basis that they are “technical, difficult to find and difficult to understand” and are not therefore “readily available”. Indeed, I also note that, as Mr Oakes pointed out, the Explanatory Notes were themselves expressly considered by Parliament at various stages of the passage of the Bill (although not the provisions I am dealing with).

+ + + +93. + +

I turn to the authorities relied upon by Mr Oakes as, he submits, throwing light upon the transitional provisions in this case and the meaning to be given to “actual or prospective rights” as part of the entitlement condition.

+ + + +94. + +

Turning first to “actual right”, Mr Oakes submits that this means a right which existed as at 5 April 2006 in an unqualified form at that time in the sense that at that time there was an unqualified right to receive benefits (i.e. in this case the pension). He submits that as at 5 April 2006 Mr Howell had no immediate unqualified right to a pension: his right to a pension under the Scheme was a right to a pension in the future if and when (among other things) he attained the relevant age.

+ + + +95. + +

I accept Mr Oakes’ submissions to the effect that an “actual right” to a benefit in this context is to be equated with the concept of unconditional “entitlement to payment” rather than having any element of prospectivity about it. This is supported, by example, by the Explanatory Notes to what was clause 205 of the Finance Bill 2004 and which is now section 216 of the FA 2004. Section 216 identifies benefit crystallisation events and the amount crystallised in the context of the lifetime allowance charge. It draws a distinction between persons becoming entitled to certain benefits (eg a pension or an annuity) and the individual reaching a certain age when “prospectively entitled” to various benefits. The Explanatory Notes to clause 205 of the Finance Bill 2004 (which became s216 FA 2004) explain:

+ + + +

“‘The point at which an individual becomes entitled to the payment of a pension is when the right to receive it becomes actual as opposed to prospective, or in other words, when the pension payments commence”.

+ + + + +96. + +

Furthermore, previous pensions legislation has sought to protect rights already granted. Section 67(2) of the Pensions Act 1995, in its original form, prevented exercise of any power conferred on a person to modify an occupational pension scheme:

+ + + +

“ on any occasion in a manner which would or might affect any entitlement, or accrued right, of any member of the scheme acquired before the power is exercised […]”

+ + + + +97. + +

Section 67(2) as amended makes voidable the exercise of a power in relation to “subsisting rights” defined as being:

+ + + +

(a) in relation to a member of an occupational pension scheme, at any time–

+ + + +

(i) any right which at that time has accrued to or in respect of him to future benefits under the scheme rules, or

+ + + + +

(ii) any entitlement to the present payment of a pension or other benefit which he has at that time, under the scheme rules, […]”

+ + + + + +98. + +

This suggests, at the least, the possibility of a distinction in the entitlement condition between an “actual right” (being equivalent to an entitlement) and an prospective right (being equivalent to an “accrued right”).

+ + + +99. + +

I was referred to a number of cases construing relevant pension legislation. They included Courage Groups Pension Schemes [1987] 1 All ER 528; AON Trust Corporation v KPMG [2005] EWCA Civ 1004; Danks v Qinetiq [2012] EWHC 570; Barclays Bank v Holmes [2000] BPIR 339; Briggs v Gleeds [2014] EWHC 1178 (Ch) and Entrust Pension v Prospect [2012] EWCH 1666 (Ch). It is notable in the latter case that a “right” to a definable share of surplus was purely discretionary and that this was not therefore a right or entitlement within the relevant meaning of the instrument in question.

+ + + +100. + +

I also note that in Alexander Forbes Trustee Services Limited v Clarke [2008] EWHC 153 (Ch), the meaning of “where a person’s entitlement to payment of a pension or other benefit has arisen” was in question. In that context, “entitlement” was found to be capable of extending beyond a pension already in payment to a situation where all the requirements for receipt of pension benefits had already been fulfilled or “lay wholly in the hands” of the relevant member. This appears to be an example where “entitlement" in the particular context went beyond its more narrow meaning where used in contradistinction to “accrued right”. Again, it demonstrates that resort to dictionaries does not yield the entire answer.

+ + + +101. + +

Not by way of reliance on the meaning of the words given by her, but by way of illustrating that the relevant words of the entitlement condition in paragraph 22 of Schedule 36 FA 2004 are capable of bearing the meaning attributed to them by Mr Oakes (at least as regards the meaning of “actual right” contrasted with “prospective right”), I note also that Ms Ruth Kelly MP, in the context of became section 216 (the crystallisation clause) in answer to a number of comments by Mr George Osborne MP confirmed that:

+ + + +

“the hon. Gentlemen seem to have misunderstood the Bill. The concept of entitlement is clearly defined. It is consistent and it recurs throughout the tax simplification legislation. A benefit crystallisation event is triggered on the individual becoming entitled to a certain benefit. Entitlement has a clear meaning in the legislation, as set out in clause 155. The legislation uses “entitled” to mean the point at which an individual’s right to receive benefits under a pension scheme cease to be prospective and become actual”: Hansard 15 June 2004, Column 578, Clause 205.

+ + + + +102. + +

Ms Brown submits that I am not entitled to consider or, if I am, that I gain no assistance from, the case law on different statutory provisions and which use different terminology. I disagree. The concepts are useful and analogous and they demonstrate that the relevant words of the entitlement condition are capable of bearing the meaning given by Mr Oakes.

+ + + +103. + +

In my judgment, whatever rights Mr Howell had in 2006 to receive benefits under the Scheme, those rights were not, as at 5 April 2006, “actual” within the meaning of paragraph 22 schedule 36 FA 2004. The real issue is whether they were “prospective rights” and therefore whether or not they do not qualify as such because of the contingency that they depend upon the consent of the claimant being given to the retirement notice as required by rule B1 of the Scheme. Furthermore, the words “prospective right” in the definition of the entitlement condition, are words that, in my judgment, are capable as a matter of language of excluding any entitlement that will only arise if and when a third party exercises a discretion or gives some consent or permission.

+ + + +104. + +

In those circumstances, the Explanatory Notes are, in my judgment, clear that the words “actual or prospective” right to benefits excludes the situation where the right will only arise if a third party exercises a discretion or gives consent or permission.

+ + + +105. + +

I should also note that, even if I am wrong about the boundary line between “actual and “prospective” rights, the Explanatory Notes make clear that the circumstances where a third party has to give consent/permission before the right arises is one outside the entitlement condition set out in paragraph 22(2)(a) of Schedule 36 FA 2004.

+ + + +106. + +

As regards the Explanatory Notes, Ms Brown submits that the notes only refer to “trustee consent” whereas here the issue is employer consent or permission. I am not sure that that is correct. It seems to me that the consent required under FPSO is in fact that of the Claimant as relevant manager of the Scheme. In any event, the Explanatory Note is clear that the key is whether the right can be exercised unilaterally by the employee and of course that is not the case under FPSO (though I revert to that issue later in this judgment).

+ + + +107. + +

I also reject the submission that it is necessary to construe the Explanatory Note and that it is difficult in its meaning or unclear. In my judgment the Explanatory Note is perfectly clear and makes sense in the overall policy context of the FA 2004’s relevant transitional provision.

+ + + +108. + +

I turn to consider the question of the admissibility and effect of the statement of Ms Ruth Kelly MP to Standing Committee A on the relevant amendment (which was accepted and which became the entitlement condition) as set out in the Hansard extract that I have quoted. It seems to me that that statement in real terms replicates the relevant note in the Explanatory Notes. As such it may add little and it is probably not admissible on the basis that without it the meaning of the relevant entitlement condition is clear, using the Explanatory Notes, without having to resort to Hansard.

+ + + +109. + +

Of the statement by Ms Kelly MP, Ms Brown says that the legislation is not ambiguous because resort to the English dictionary shows that it is not ambiguous. I do not agree. I do agree however that the relevant statutory provision is not ambiguous once it is construed against the background of the Explanatory Note.

+ + + +110. + +

Strictly therefore I do not consider that the Hansard extract is admissible because I do not consider that there is ambiguity. If I am wrong on that point, I consider that the other pre-conditions of Pepper v Hart are met.

+ + + +111. + +

I should note that at one point Ms Brown submitted that the relevant ministerial statement was not admissible because it was made only to a standing committee and not the whole House but of course that was the case in Pepper v Hart itself.

+ + + +112. + +

Ms Brown also submitted that the Hansard extract does not expressly discuss the provision in question or the transitional scheme at all. I disagree.

+ + + +113. + +

Ms Brown also submitted that the passages relied upon represent the intention of the Minister not the intention of Parliament. I disagree. Inevitably a relevant ministerial statement will express the intention of the Minister (or the Government) as to what words in a Bill are to mean if enacted but if that intention is expressly set out to Parliament and Parliament accepts the relevant wording then the intention of the Minister/Government is adopted by and becomes the intention of Parliament.

+ + + +114. + +

Ms Brown also submitted that the statement of Ruth Kelly MP was unclear and contradictory because it cuts across her (Ms Kelly’s) earlier statement that it would be unfair to introduce a change which cuts across people’s rights to take a pension at an earlier age. I disagree with both propositions. In my judgment the statement is clear. Further it does not contradict her earlier statement, rather it explains what amount to rights that cannot be cut across and other “rights” which can be.

+ + + +115. + +

Accordingly, my conclusions are:

+ + +(1) + +

to be an “actual right to a benefit” within the meaning of paragraph 22 of Schedule 36 FA 2004, the right must be an immediate right to the benefit and subject to no contingencies;

+ + + +(2) + +

that where there is no immediate right to a benefit but a contingent future right subject to future contingencies, the right will be a prospective right (subject to (iii));

+ + + +(3) + +

future contingences, such as the occurrence of natural events (attaining a certain age) or contingencies wholly within the control of the member (such as not taking certain specified types of employment on retirement (as in rule B1(2)(a)) or not making an election under the Scheme rules, as in B1(2)(c)) are contingencies that are consistent with the right being prospective. However, a condition that requires consent or permission of a third party before there is any right to a pension will be a contingency that will result in there not being a “prospective right to a benefit” within the meaning of FA 2004, schedule 36 paragraph 22.

+ + + + + +

FPSO and how FA 2014 applies to it

+ + + +116. + +

In my judgment:

+ + +(1) + +

Rule B1(3) FPSO confers an entitlement, on retirement, to an ordinary pension calculated in accordance with Part 1 of Schedule 2 on a person “to whom this rule applies”;

+ + + +(2) + +

The rule does not apply to a Chief Fire Officer, if he retires before the age of 55, unless his notice of retirement was given with the permission of (in this case, the Claimant);

+ + + + +

There is therefore, at most, an entitlement conditional upon permission of a third party. I deal further below with Ms Brown’s submissions as to the nature of the “permission” in question and its effect.

+ + + + +117. + +

Further, I accept Mr Oakes’ submission that the natural reading of the rule is that there is no right in a CFO to receive an early pension unless and until permission to give notice of (early) retirement is given. There is no right before such permission and this is not a case where the right is subject to a condition subsequent which will remove an existing right.

+ + + +118. + +

I return to the question of permission and consent and how that fits in with the meaning of the 2004 FA with regard to the first element of the entitlement condition.

+ + + +119. + +

As I have said, I do not consider that there is anything in the point that the Explanatory Notes give an example of a third party consent (a trustee) and not that of an employer. Further, if there is said to be an ambiguity then the Ruth Kelly MP statement should be allowed in and that does cover employers too.

+ + + +120. + +

Ms Brown’s submission is that, even if necessary consent of a third party to the grant of a pension right is outside the protection of the transitional provisions, because it does not meet the meaning of an “actual or prospective” right to a benefit, the requirement of permission within rule B1 of FPSO does not fall foul of this principle.

+ + + +121. + +

First, she submits that “permission” is different to “consent” and that in this case “permission” does not operate as a “consent”. She also submits that rule B1 does not have words such as “subject to trustee consent”. I do not accept these submissions. Whether called “permission” or “consent”, in effect the Claimant has to take the further step of agreeing that a retirement notice can be given if the right to an early pension is to be activated. Mr Howell did not as at April 2006 have a right to an early pension dependent only upon his own actions or the happening of natural contingencies (such as attaining the relevant age). He was then dependent on receiving permission (or consent) of the Claimant in the future.

+ + + +122. + +

Secondly, she submits that the Claimant, whether as manager of the scheme (or, she would say, trustee) or as employer would not in practice be able to refuse permission, the only right to refuse permission being confined to matters of “timing and form”. As regards inability to refuse consent she submitted that the employer could not realistically refuse permission to give notice of retirement because the contract of service would not be enforceable because specific performance would not be granted (citing cases such as Lumley v Wagner (1843-60) ALL ER Rep 368; C H Giles & Co. Ltd v Norris [1972] 1 ALL ER 960 and Warner Bros v Nelson [1937] 1 KB 209).

+ + + +123. + +

As regards the latter point this seems to me to confuse ability to refuse consent to retirement and ability to refuse consent (or permission) to give notice of early retirement which triggers the right to an early pension. I was unclear on what basis Ms Brown said that the right to refuse permission was confined to timing or form and indeed what that meant. She suggested that a notice might be refused where the services of the chief fire officer were required to enable time to arrange a successor but accepted that if refused that could prevent any right to an early pension.

+ + + +124. + +

Ms Brown also suggested that there was no ability to refuse permission under rule B1 FPSO because this would amount to a refusal to allow an early pension and amount to constructive dismissal. I accept Mr Oakes’ submission that this submission was not made out on the facts.

+ + + +125. + +

Accordingly, I consider that as at 5 April 2006, Mr Howell did not have an actual or prospective right to benefits under the Scheme, in terms of a right to an early pension, within the meaning of the entitlement condition set out in paragraph 22 of schedule 36 FA 2004. This is because although he was within the Scheme, any right he had was contingent upon and did not arise unless and until the Claimant gave its permission for him to serve a relevant (early) notice of retirement for the purposes of the Scheme. The need for such third party consent means that he did not satisfy the entitlement condition as properly construed.

+ + + + +

Conclusion

+ + + +126. + +

In my judgment, such contingent right as Mr Howell had, as at 5 April 2006, under rule B1 of the FPSO to an early pension, that is one to be received under the age of 55, was not an “actual” or “prospective” right to benefits under paragraph 22 of Schedule 36 FA 2004. Accordingly, the entitlement condition laid out in that paragraph was not met. It follows that any payment to him of a pension under the Scheme under FPSO prior to him reaching the age of 55 will amount to an unauthorised payment under FA 2004.

+ + + +127. + +

A draft minute of order having been lodged (which sets out what is agreed, and identifying the non-agreed respective proposals of the parties where there is non-agreement), short skeleton arguments regarding consequential matters should be filed and served by 4pm on Monday 13 February 2023. A remote hearing will be arranged by the court, if necessary at any time after 9:30am hopefully in that week and the parties should approach the court to make appropriate arrangements by 10am Tuesday 14 February 2023.

+ + + +128. + +

In the meantime, I also make an order adjourning all consequential matters (including permission to appeal) and extend the time for filing a notice of appeal so that the 21 day period runs from the date that the final order is sealed.

+ + + + + + diff --git a/src/tests/oblique_reference_extraction_tests/test_determine_and_replace_oblique_references.py b/src/tests/oblique_reference_extraction_tests/test_determine_and_replace_oblique_references.py index 61acae10e..2426c3b57 100644 --- a/src/tests/oblique_reference_extraction_tests/test_determine_and_replace_oblique_references.py +++ b/src/tests/oblique_reference_extraction_tests/test_determine_and_replace_oblique_references.py @@ -20,7 +20,7 @@ def test_enrich_oblique_references(self): When it is passed to `enrich_oblique_references` Then xml judgment content is returned with enriched oblique references """ - input_file_path = f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1.xml" + input_file_path = f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1_ORIGINAL.xml" with open(input_file_path, encoding="utf-8") as input_file: input_file_content = input_file.read() diff --git a/src/tests/oblique_reference_extraction_tests/test_oblique_references.py b/src/tests/oblique_reference_extraction_tests/test_oblique_references.py index 25dc60b1b..7276a3c0f 100644 --- a/src/tests/oblique_reference_extraction_tests/test_oblique_references.py +++ b/src/tests/oblique_reference_extraction_tests/test_oblique_references.py @@ -78,7 +78,7 @@ def test_get_oblique_reference_replacements_by_paragraph(self): Then a dict of replacement information for each oblique detected reference is returned """ - input_file_path = f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1.xml" + input_file_path = f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1_ORIGINAL.xml" with open(input_file_path, encoding="utf-8") as input_file: input_file_content = input_file.read() oblique_reference_replacements = get_oblique_reference_replacements_by_paragraph(input_file_content) diff --git a/src/tests/replacer_tests/test_second_stage_replacer.py b/src/tests/replacer_tests/test_second_stage_replacer.py index 68867e85d..260e0060f 100644 --- a/src/tests/replacer_tests/test_second_stage_replacer.py +++ b/src/tests/replacer_tests/test_second_stage_replacer.py @@ -41,7 +41,7 @@ def test_replace_references_by_paragraph(self): Then an enriched string is returned with the references replaced by the corresponding ref tag """ - input_file_path = f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1.xml" + input_file_path = f"{FIXTURE_DIR}/ewhc-ch-2023-257_enriched_stage_1_ORIGINAL.xml" with open(input_file_path, encoding="utf-8") as input_file: file_content = input_file.read() file_data = BeautifulSoup(file_content, "xml") From 6b31a3ec0415607ce23ccdaa0fcc09d15ea9204f Mon Sep 17 00:00:00 2001 From: Nick Jackson Date: Tue, 26 Nov 2024 17:44:13 +0000 Subject: [PATCH 07/14] Make mypy complain properly --- .pre-commit-config.yaml | 4 ++++ setup.cfg | 1 + 2 files changed, 5 insertions(+) diff --git a/.pre-commit-config.yaml b/.pre-commit-config.yaml index a7ff27f99..82677cc9d 100644 --- a/.pre-commit-config.yaml +++ b/.pre-commit-config.yaml @@ -44,8 +44,12 @@ repos: types-requests, types-lxml, types-beautifulsoup4, + types-psycopg2, + pandas-stubs, + pytest-stub, "boto3-stubs[essential, secretsmanager]", aws_lambda_powertools, + moto, ] - repo: https://github.com/pre-commit/mirrors-prettier diff --git a/setup.cfg b/setup.cfg index 70a37ca00..0a77c223c 100644 --- a/setup.cfg +++ b/setup.cfg @@ -1,5 +1,6 @@ [mypy] python_version = 3.12 +mypy_path = src check_untyped_defs = True ignore_missing_imports = True warn_unused_ignores = True From 42e227904a9890d1260b25fa67d930425f078860 Mon Sep 17 00:00:00 2001 From: David McKee Date: Tue, 26 Nov 2024 18:01:00 +0000 Subject: [PATCH 08/14] Fix types --- setup.cfg | 6 ++++++ src/lambdas/extract_judgement_contents/index.py | 2 +- src/lambdas/update_rules_processor/index.py | 2 +- src/lambdas/vlex_upload/index.py | 6 +++--- src/legislation_extraction/legislation_matcher_hybrid.py | 6 +++--- src/replacer/make_replacments.py | 2 +- src/replacer/replacer_pipeline.py | 2 +- src/utils/helper.py | 4 ++-- src/utils/initialise_db.py | 5 ++++- src/utils/proper_xml.py | 4 ++-- 10 files changed, 24 insertions(+), 15 deletions(-) diff --git a/setup.cfg b/setup.cfg index 0a77c223c..66ab3c5a8 100644 --- a/setup.cfg +++ b/setup.cfg @@ -6,3 +6,9 @@ ignore_missing_imports = True warn_unused_ignores = True warn_redundant_casts = True warn_unused_configs = True + +[mypy-tests.*] +ignore_errors = True + +[mypy-utils.tests.*] +ignore_errors = True diff --git a/src/lambdas/extract_judgement_contents/index.py b/src/lambdas/extract_judgement_contents/index.py index 875bcf1c2..183860d43 100644 --- a/src/lambdas/extract_judgement_contents/index.py +++ b/src/lambdas/extract_judgement_contents/index.py @@ -34,7 +34,7 @@ def process_event(sqs_rec: S3EventRecord): upload_contents(source_key, text_content) -def extract_text_content(file_content: DocumentAsXMLString) -> str: +def extract_text_content(file_content: DocumentAsXMLString) -> DocumentAsXMLString: """ Extract text from the content elements of the XML file """ diff --git a/src/lambdas/update_rules_processor/index.py b/src/lambdas/update_rules_processor/index.py index 9608da472..2020c1f75 100644 --- a/src/lambdas/update_rules_processor/index.py +++ b/src/lambdas/update_rules_processor/index.py @@ -19,7 +19,7 @@ class MismatchedIdShapeError(Exception): pass -def write_patterns_file(patterns_list: str) -> str: +def write_patterns_file(patterns_list: list[str]) -> str: """ Write patterns to separate lines """ diff --git a/src/lambdas/vlex_upload/index.py b/src/lambdas/vlex_upload/index.py index 14af3cfce..edd156970 100644 --- a/src/lambdas/vlex_upload/index.py +++ b/src/lambdas/vlex_upload/index.py @@ -6,7 +6,7 @@ from distutils.util import strtobool from utils.environment_helpers import validate_env_variable -from utils.types import DocumentAsXMLString +from utils.types import DocumentAsXMLBytes LOGGER = logging.getLogger() LOGGER.setLevel(logging.DEBUG) @@ -25,14 +25,14 @@ def process_event(sqs_rec): print("Input bucket name:", source_bucket) print("Input S3 key:", source_key) - file_content = s3_client.get_object(Bucket=source_bucket, Key=source_key)["Body"].read() + file_content = DocumentAsXMLBytes(s3_client.get_object(Bucket=source_bucket, Key=source_key)["Body"].read()) upload_contents(source_key, file_content) LOGGER.debug("content uploaded") return True -def upload_contents(source_key: str, text_content: DocumentAsXMLString): +def upload_contents(source_key: str, text_content: DocumentAsXMLBytes): """ Upload judgment XML to destination S3 bucket """ diff --git a/src/legislation_extraction/legislation_matcher_hybrid.py b/src/legislation_extraction/legislation_matcher_hybrid.py index 1bbd29cec..d484d2c4a 100644 --- a/src/legislation_extraction/legislation_matcher_hybrid.py +++ b/src/legislation_extraction/legislation_matcher_hybrid.py @@ -59,7 +59,7 @@ def mergedict(x, b): def resolve_overlap(results_dict): """ - Resolves references that have been detected as legislation but overlap in the body of judgement to the most accurate legislation. + Resolves references that have been detected as legislation but overlap in the body of judgment to the most accurate legislation. This might occur due to the nature of the fuzzy matching where it matches two closely worded legislation to the same text in a judgement. This function ensures a 1-to-1 linkage between a legislation title and a detected reference. Parameters @@ -72,9 +72,9 @@ def resolve_overlap(results_dict): dictionary containing the detected references with overlapped references removed. """ qq = pd.DataFrame([results_dict]) - qq = qq.T.explode(0)[0].apply(pd.Series) + qq = qq.T.explode([0])[0].apply(pd.Series) - qq.columns = keys + qq.columns = pd.Index(keys) # get refs that overlap in the text mask = (qq.start.values[:, None] >= qq.start.values) & (qq.end.values[:, None] <= qq.end.values) diff --git a/src/replacer/make_replacments.py b/src/replacer/make_replacments.py index fb77639df..04fc86d18 100644 --- a/src/replacer/make_replacments.py +++ b/src/replacer/make_replacments.py @@ -93,7 +93,7 @@ def apply_replacements(content: XMLFragmentAsString, replacement_patterns: str) replacement_pattern_dict = json.loads(replacement_pattern_json) replacement_type, replacement_pattern_list = list(replacement_pattern_dict.items())[0] - replacement_pattern = tuple(replacement_pattern_list) + replacement_pattern = Replacement(tuple(replacement_pattern_list)) if replacement_type == "case": case_replacement_patterns.append(replacement_pattern) diff --git a/src/replacer/replacer_pipeline.py b/src/replacer/replacer_pipeline.py index a644ac691..7506279f5 100644 --- a/src/replacer/replacer_pipeline.py +++ b/src/replacer/replacer_pipeline.py @@ -30,7 +30,7 @@ def _replace_string_with_tag_handling_junk(file_data, string, tag): good = file_data tail = "" - new = replace_string_with_tag(good, string, tag) + new = replace_string_with_tag(XMLFragmentAsString(good), string, tag) return new + tail diff --git a/src/utils/helper.py b/src/utils/helper.py index 762db17a6..3183d5844 100644 --- a/src/utils/helper.py +++ b/src/utils/helper.py @@ -9,7 +9,7 @@ from utils.types import DocumentAsXMLString -def parse_file(file_data: DocumentAsXMLString) -> str: +def parse_file(file_data: DocumentAsXMLString) -> DocumentAsXMLString: """ Parse XML file. Only get text within content elements :param file_data: XML file @@ -18,4 +18,4 @@ def parse_file(file_data: DocumentAsXMLString) -> str: soup = BeautifulSoup.BeautifulSoup(str(file_data), "xml") judgment_content = soup.find_all(re.compile(r"(content|intro|wrapUp)")) judgment_content_text = " ".join([content.text.strip() for content in judgment_content]) - return judgment_content_text + return DocumentAsXMLString(judgment_content_text) diff --git a/src/utils/initialise_db.py b/src/utils/initialise_db.py index d635bb3ee..1c5673d47 100644 --- a/src/utils/initialise_db.py +++ b/src/utils/initialise_db.py @@ -46,4 +46,7 @@ def init_db_connection() -> psycopg2.extensions.connection: def _get_database_password() -> str: aws_secret_name = validate_env_variable("SECRET_PASSWORD_LOOKUP") aws_region_name = validate_env_variable("REGION_NAME") - return get_aws_secret(aws_secret_name, aws_region_name) + secret = get_aws_secret(aws_secret_name, aws_region_name) + if isinstance(secret, bytes): + return secret.decode("utf-8") + return secret diff --git a/src/utils/proper_xml.py b/src/utils/proper_xml.py index 9d2ab5e24..9b4b6ccc1 100644 --- a/src/utils/proper_xml.py +++ b/src/utils/proper_xml.py @@ -47,7 +47,7 @@ def replace_string_with_tag(xml: XMLFragmentAsString, string: str, tag: str) -> stylesheet = lxml.etree.XML(XSLT_TEMPLATE.format(replaced_string=sanitised_string, replacement_tag=tag)) transformer = lxml.etree.XSLT(stylesheet) output = lxml.etree.tostring(transformer(root)) - return output.decode("utf-8") + return XMLFragmentAsString(output.decode("utf-8")) def expand_namespace(namespaced_name: str) -> str: @@ -73,4 +73,4 @@ def create_tag(tag: str, contents: str = "", attrs: dict[str, str] | None = None def create_tag_string(tag: str, contents: str = "", attrs: dict[str, str] | None = None) -> XMLFragmentAsString: - return lxml.etree.tostring(create_tag(tag=tag, contents=contents, attrs=attrs)).decode("utf-8") + return XMLFragmentAsString(lxml.etree.tostring(create_tag(tag=tag, contents=contents, attrs=attrs)).decode("utf-8")) From 223da59976ab46b709d29ab7ce878b972840e2ec Mon Sep 17 00:00:00 2001 From: David McKee Date: Thu, 28 Nov 2024 11:57:45 +0000 Subject: [PATCH 09/14] Typing for LegislationReferenceReplacements --- src/oblique_references/oblique_references.py | 27 +++++++++++--------- 1 file changed, 15 insertions(+), 12 deletions(-) diff --git a/src/oblique_references/oblique_references.py b/src/oblique_references/oblique_references.py index d1967c4e7..bb447f65f 100644 --- a/src/oblique_references/oblique_references.py +++ b/src/oblique_references/oblique_references.py @@ -24,9 +24,11 @@ from bs4 import BeautifulSoup +from replacer.second_stage_replacer import LegislationReferenceReplacement from utils.proper_xml import create_tag_string LegislationReference = tuple[tuple[int, int], str] +LegislationReferenceReplacements = list[LegislationReferenceReplacement] class LegislationDict(TypedDict): @@ -38,9 +40,6 @@ class LegislationDict(TypedDict): href: str -LegislationReferenceReplacements = list[dict[str, str | int]] - - class NotExactlyOneRefTag(RuntimeError): """soup.get() can return None if there is no tag to find, or a list of hits if there are multiple tags. These are not handled @@ -201,7 +200,7 @@ def get_replacements( detected_acts: list[LegislationReference], legislation_dicts: list[LegislationDict], numbered_act: bool, - replacements: list[dict], + replacements: list[LegislationReferenceReplacement], paragraph_number: int, ) -> LegislationReferenceReplacements: """ @@ -214,18 +213,22 @@ def get_replacements( :returns: list of replacements """ for detected_act in detected_acts: - replacement_dict: dict[str, str | int] = {} match = detected_act[1] if numbered_act: matched_replacement = match_numbered_act(detected_act, legislation_dicts) else: matched_replacement = match_act(detected_act, legislation_dicts, paragraph_number) - replacement_dict["detected_ref"] = match - replacement_dict["ref_position"] = detected_act[0][0] - replacement_dict["ref_para"] = paragraph_number if matched_replacement: - replacement_dict["ref_tag"] = create_section_ref_tag(matched_replacement, match) - replacements.append(replacement_dict) + ref_tag = create_section_ref_tag(matched_replacement, match) + + replacements.append( + LegislationReferenceReplacement( + detected_ref=match, + ref_position=detected_act[0][0], + ref_para=paragraph_number, + ref_tag=ref_tag, + ), + ) return replacements @@ -241,11 +244,11 @@ def get_oblique_reference_replacements_by_paragraph( """ soup = BeautifulSoup(file_content, "xml") paragraphs = soup.find_all("p") - all_replacements: list[dict] = [] + all_replacements: list[LegislationReferenceReplacement] = [] all_legislation_dicts = [] for paragraph_number, paragraph in enumerate(paragraphs): - replacements: list[dict] = [] + replacements: list[LegislationReferenceReplacement] = [] detected_legislation = detect_reference(str(paragraph), "legislation") legislation_dicts = create_legislation_dict(detected_legislation, paragraph_number) all_legislation_dicts.extend(legislation_dicts) From f1855369463c15dffbd55cd811d160757bedc7a9 Mon Sep 17 00:00:00 2001 From: David McKee Date: Fri, 29 Nov 2024 12:18:11 +0000 Subject: [PATCH 10/14] better regression test --- src/tests/fixtures/broken.txt | 147 - src/tests/fixtures/broken.xml | 3189 ----------------- .../replacer_tests/test_make_replacements.py | 28 +- 3 files changed, 22 insertions(+), 3342 deletions(-) delete mode 100644 src/tests/fixtures/broken.txt delete mode 100644 src/tests/fixtures/broken.xml diff --git a/src/tests/fixtures/broken.txt b/src/tests/fixtures/broken.txt deleted file mode 100644 index 1491ffc65..000000000 --- a/src/tests/fixtures/broken.txt +++ /dev/null @@ -1,147 +0,0 @@ -{"case": ["[1998] PIQR 324", "[1998] PIQR 324", "1998", "#", false]} -{"case": ["[2012] EWHC 3511 (QB)", "[2012] EWHC 3511 (QB)", "2012", "https://caselaw.nationalarchives.gov.uk/ewhc/qb/2012/3511", true]} -{"case": ["[2008] 1 Lloyd\u2019s Rep 96", "[2008] 1 Lloyd's Rep 96", "2008", "#", false]} -{"case": ["[1995] 2 Lloyd\u2019s Rep 225", "[1995] 2 Lloyd's Rep 225", "1995", "#", false]} -{"case": ["[1996] 2 Lloyd\u2019s Rep 84", "[1996] 2 Lloyd's Rep 84", "1996", "#", false]} -{"case": ["[1995] 2 Lloyd\u2019s Rep 225", "[1995] 2 Lloyd's Rep 225", "1995", "#", false]} -{"case": ["[1996] 2 Lloyd\u2019s Rep 84", "[1996] 2 Lloyd's Rep 84", "1996", "#", false]} -{"case": ["[2011] 1 Lloyds Rep 301", "[2011] 1 Lloyd's Rep 301", "2011", "#", false]} -{"case": ["[1973] 1 WLR 386", "[1973] 1 WLR 386", "1973", "#", false]} -{"case": ["[2013] 2 Lloyd's Rep 69", "[2013] 2 Lloyd's Rep 69", "2013", "#", false]} -{"case": ["[1948] 2 KB 153", "[1948] 2 KB 153", "1948", "#", false]} -{"case": ["[1986] Ch 80", "[1986] Ch 80", "1986", "#", false]} -{"case": ["[1947] K.B. 842", "[1947] KB 842", "1947", "#", false]} -{"case": ["[1947] K.B. 842", "[1947] KB 842", "1947", "#", false]} -{"case": ["[2013] 1 WLR 63", "[2013] 1 WLR 63", "2013", "#", false]} -{"case": ["[1957] 2 QB 401", "[1957] 2 QB 401", "1957", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1980] AC 827", "[1980] AC 827", "1980", "#", false]} -{"case": ["[1987] QB 527", "[1987] QB 527", "1987", "#", false]} -{"case": ["[1963] 2 QB 104", "[1963] 2 QB 104", "1963", "#", false]} -{"case": ["[1953] 1 QB 86", "[1953] 1 QB 86", "1953", "#", false]} -{"case": ["[1961] 1 WLR 1124", "[1961] 1 WLR 1124", "1961", "#", false]} -{"case": ["[1962] 1 WLR 117", "[1962] 1 WLR 117", "1962", "#", false]} -{"case": ["[1962] AC 600", "[1962] AC 600", "1962", "#", false]} -{"case": ["[1919] 2 KB 305", "[1919] 2 KB 305", "1919", "#", false]} -{"case": ["[1921] 3 KB 420", "[1921] 3 KB 420", "1921", "#", false]} -{"case": ["[1949] AC 76", "[1949] AC 76", "1949", "#", false]} -{"case": ["[1971] 1 QB 488", "[1971] 1 QB 488", "1971", "#", false]} -{"case": ["[1921] 1 AC 376", "[1921] 1 AC 376", "1921", "#", false]} -{"case": ["[1921] 1 AC 376", "[1921] 1 AC 376", "1921", "#", false]} -{"case": ["[1973] 1 W.L.R. 386", "[1973] 1 WLR 386", "1973", "#", false]} -{"case": ["[1973] 1 W.L.R. 386", "[1973] 1 WLR 386", "1973", "#", false]} -{"case": ["[1976] 2 Lloyd\u2019s Rep 192", "[1976] 2 Lloyd's Rep 192", "1976", "#", false]} -{"case": ["[1972] 2 Lloyd\u2019s Rep. 465", "[1972] 2 Lloyd's Rep 465", "1972", "#", false]} -{"case": ["[1974] 2 Lloyd\u2019s Rep. 241", "[1974] 2 Lloyd's Rep 241", "1974", "#", false]} -{"case": ["[1921] 3 K.B. 420", "[1921] 3 KB 420", "1921", "#", false]} -{"case": ["[1972] 2 Lloyd\u2019s Rep. 465", "[1972] 2 Lloyd's Rep 465", "1972", "#", false]} -{"case": ["[1974] 2 Lloyd\u2019s Rep. 241", "[1974] 2 Lloyd's Rep 241", "1974", "#", false]} -{"case": ["[1921] 3 K.B. 420", "[1921] 3 KB 420", "1921", "#", false]} -{"case": ["[1977] AC 850", "[1977] AC 850", "1977", "#", false]} -{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} -{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} -{"case": ["[1942] 2 K.B. 65", "[1942] 2 KB 65", "1942", "#", false]} -{"case": ["[1942] 2 K.B. 65", "[1942] 2 KB 65", "1942", "#", false]} -{"case": ["[1979] 1 WLR 1018", "[1979] 1 WLR 1018", "1979", "#", false]} -{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} -{"case": ["[1977] A.C. 850", "[1977] AC 850", "1977", "#", false]} -{"case": ["[1971] 1 Q.B. 488", "[1971] 1 QB 488", "1971", "#", false]} -{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} -{"case": ["[1977] A.C. 850", "[1977] AC 850", "1977", "#", false]} -{"case": ["[1971] 1 Q.B. 488", "[1971] 1 QB 488", "1971", "#", false]} -{"case": ["[1981] 1 WLR 314", "[1981] 1 WLR 314", "1981", "#", false]} -{"case": ["[1980] 1 Lloyd\u2019s Rep. 545", "[1980] 1 Lloyd's Rep 545", "1980", "#", false]} -{"case": ["[1980] A.C. 827", "[1980] AC 827", "1980", "#", false]} -{"case": ["[1980] 1 Lloyd\u2019s Rep. 545", "[1980] 1 Lloyd's Rep 545", "1980", "#", false]} -{"case": ["[1980] A.C. 827", "[1980] AC 827", "1980", "#", false]} -{"case": ["[1980] AC 827", "[1980] AC 827", "1980", "#", false]} -{"case": ["[1978] AC 904", "[1978] AC 904", "1978", "#", false]} -{"case": ["[1983] 2 AC 694", "[1983] 2 AC 694", "1983", "#", false]} -{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} -{"case": ["[1949] A.C. 76", "[1949] AC 76", "1949", "#", false]} -{"case": ["[1985] 1 AC 191", "[1985] 1 AC 191", "1985", "#", false]} -{"case": ["[2012] 2 AC 164", "[2012] 2 AC 164", "2012", "#", false]} -{"case": ["[2010] 1 Lloyd\u2019s Rep 87", "[2010] 1 Lloyd's Rep 87", "2010", "#", false]} -{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} -{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} -{"case": ["[1962] 2 QB 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1981] 1 WLR 711", "[1981] 1 WLR 711", "1981", "#", false]} -{"case": ["[1980] 1 Lloyd\u2019s Rep 294", "[1980] 1 Lloyd's Rep 294", "1980", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1976] Q.B. 44", "[1976] QB 44", "1976", "#", false]} -{"case": ["[1976] 1 W.L.R. 989", "[1976] 1 WLR 989", "1976", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1978] 2 Lloyd\u2019s Rep. 73", "[1978] 2 Lloyd's Rep 73", "1978", "#", false]} -{"case": ["[1954] 2 Lloyd\u2019s Rep. 198", "[1954] 2 Lloyd's Rep 198", "1954", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1976] Q.B. 44", "[1976] QB 44", "1976", "#", false]} -{"case": ["[1976] 1 W.L.R. 989", "[1976] 1 WLR 989", "1976", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1978] 2 Lloyd\u2019s Rep. 73", "[1978] 2 Lloyd's Rep 73", "1978", "#", false]} -{"case": ["[1954] 2 Lloyd\u2019s Rep. 198", "[1954] 2 Lloyd's Rep 198", "1954", "#", false]} -{"case": ["[1978] 2 Lloyd\u2019s Rep 109", "[1978] 2 Lloyd's Rep 109", "1978", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1978] A.C. 904", "[1978] AC 904", "1978", "#", false]} -{"case": ["[1978] A.C. 904", "[1978] AC 904", "1978", "#", false]} -{"case": ["[1978] 2 Lloyd\u2019s Rep. 109", "[1978] 2 Lloyd's Rep 109", "1978", "#", false]} -{"case": ["[1978] 2 Lloyd\u2019s Rep. 109", "[1978] 2 Lloyd's Rep 109", "1978", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1962] 2 Q.B. 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1976] Q.B. 44", "[1976] QB 44", "1976", "#", false]} -{"case": ["[1976] 1 W.L.R. 989", "[1976] 1 WLR 989", "1976", "#", false]} -{"case": ["[1976] Q.B. 44", "[1976] QB 44", "1976", "#", false]} -{"case": ["[1976] 1 W.L.R. 989", "[1976] 1 WLR 989", "1976", "#", false]} -{"case": ["[2001] 2 Lloyd\u2019s Rep 65", "[2001] 2 Lloyd's Rep 65", "2001", "#", false]} -{"case": ["[1978] AC 904", "[1978] AC 904", "1978", "#", false]} -{"case": ["(1841) 1 QB 389", "(1841) 1 QB 389", "1841", "#", false]} -{"case": ["[2006] 1 Lloyd\u2019s Rep 599", "[2006] 1 Lloyd's Rep 599", "2006", "#", false]} -{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} -{"case": ["[1981] 2 Lloyd\u2019s Rep. 1", "[1981] 2 Lloyd's Rep 1", "1981", "#", false]} -{"case": ["[1981] 1 W.L.R. 711", "[1981] 1 WLR 711", "1981", "#", false]} -{"case": ["[1977] 1 Lloyd\u2019s Rep. 315", "[1977] 1 Lloyd's Rep 315", "1977", "#", false]} -{"case": ["[1977] A.C. 850", "[1977] AC 850", "1977", "#", false]} -{"case": ["[1984] 2 Lloyd\u2019s Rep. 235", "[1984] 2 Lloyd's Rep 235", "1984", "#", false]} -{"case": ["[1985] A.C. 191", "[1985] AC 191", "1985", "#", false]} -{"case": ["[1981] 2 Lloyd\u2019s Rep. 1", "[1981] 2 Lloyd's Rep 1", "1981", "#", false]} -{"case": ["[1981] 1 W.L.R. 711", "[1981] 1 WLR 711", "1981", "#", false]} -{"case": ["[1977] 1 Lloyd\u2019s Rep. 315", "[1977] 1 Lloyd's Rep 315", "1977", "#", false]} -{"case": ["[1977] A.C. 850", "[1977] AC 850", "1977", "#", false]} -{"case": ["[1984] 2 Lloyd\u2019s Rep. 235", "[1984] 2 Lloyd's Rep 235", "1984", "#", false]} -{"case": ["[1985] A.C. 191", "[1985] AC 191", "1985", "#", false]} -{"case": ["[2009] 1 Lloyds Rep 461", "[2009] 1 Lloyd's Rep 461", "2009", "#", false]} -{"case": ["[1961] 2 Lloyd\u2019s Rep 478", "[1961] 2 Lloyd's Rep 478", "1961", "#", false]} -{"case": ["[1962] 2 QB 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1973] 2 Lloyd\u2019s Rep 53", "[1973] 2 Lloyd's Rep 53", "1973", "#", false]} -{"case": ["[1974] AC 235", "[1974] AC 235", "1974", "#", false]} -{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} -{"case": ["[1961] 2 Lloyd\u2019s Rep 478", "[1961] 2 Lloyd's Rep 478", "1961", "#", false]} -{"case": ["[1962] 2 QB 26", "[1962] 2 QB 26", "1962", "#", false]} -{"case": ["[1973] 2 Lloyd\u2019s Rep 53", "[1973] 2 Lloyd's Rep 53", "1973", "#", false]} -{"case": ["[1974] AC 235", "[1974] AC 235", "1974", "#", false]} -{"case": ["[2002] 2 Lloyd\u2019s Rep 436", "[2002] 2 Lloyd's Rep 436", "2002", "#", false]} -{"case": ["[1993] BCC 159", "[1993] BCC 159", "1993", "#", false]} -{"case": ["[1992] Ch 1", "[1992] Ch 1", "1992", "#", false]} -{"case": ["[1982] 1 Lloyd\u2019s Rep 562", "[1982] 1 Lloyd's Rep 562", "1982", "#", false]} -{"case": ["[1982] 1 WLR 848", "[1982] 1 WLR 848", "1982", "#", false]} -{"case": ["[1978] AC 904", "[1978] AC 904", "1978", "#", false]} -{"case": ["[2003] EWHC 725 (TCC)", "[2003] EWHC 725 (TCC)", "2003", "https://caselaw.nationalarchives.gov.uk/ewhc/tcc/2003/725", true]} -{"case": ["[1993] BCC 159", "[1993] BCC 159", "1993", "#", false]} -{"case": ["[1992] Ch 1", "[1992] Ch 1", "1992", "#", false]} -{"case": ["[1982] 1 Lloyd\u2019s Rep 562", "[1982] 1 Lloyd's Rep 562", "1982", "#", false]} -{"case": ["[1982] 1 WLR 848", "[1982] 1 WLR 848", "1982", "#", false]} -{"case": ["[1978] AC 904", "[1978] AC 904", "1978", "#", false]} -{"case": ["[2003] EWHC 725 (TCC)", "[2003] EWHC 725 (TCC)", "2003", "https://caselaw.nationalarchives.gov.uk/ewhc/tcc/2003/725", true]} -{"case": ["[2012] 1 Lloyd\u2019s Rep 87", "[2012] 1 Lloyd's Rep 87", "2012", "#", false]} -{"case": ["[1979] AC 757", "[1979] AC 757", "1979", "#", false]} -{"case": ["[1940] 3 All ER 60", "[1940] 3 All ER 60", "1940", "#", false]} -{"case": ["[1980] 1 WLR 277", "[1980] 1 WLR 277", "1980", "#", false]} -{"case": ["[1982] 1 Lloyd\u2019s Rep 570", "[1982] 1 Lloyd's Rep 570", "1982", "#", false]} -{"case": ["[2007] 2 AC 353", "[2007] 2 AC 353", "2007", "#", false]} -{"case": ["[1980] 1 Lloyd\u2019s Rep 75", "[1980] 1 Lloyd's Rep 75", "1980", "#", false]} -{"case": ["[2011] 2 Lloyd\u2019s Rep 360", "[2011] 2 Lloyd's Rep 360", "2011", "#", false]} -{"case": ["[2011] 2 Lloyd\u2019s Rep 370", "[2011] 2 Lloyd's Rep 370", "2011", "#", false]} -{"case": ["[1995] 1 Lloyd\u2019s Rep 142", "[1995] 1 Lloyd's Rep 142", "1995", "#", false]} -{"leg": ["Sale of Goods Act 1979", "http://www.legislation.gov.uk/id/ukpga/1979/54", "1979 c. 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2013 Folio 1084

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Neutral Citation Number: [2015] EWHC 718 (Comm)

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IN THE HIGH COURT OF JUSTICE

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QUEEN'S BENCH DIVISION

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COMMERCIAL COURT

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Combined Court Centre

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The Law Courts

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Winchester

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Hants SO 23 9EL

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Date: 18/03/2015

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Before :

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THE HON. MR JUSTICE POPPLEWELL

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Between :

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SPAR SHIPPING AS

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Claimant

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GRAND CHINA LOGISTICS HOLDING (GROUP) CO., LTD

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Defendant

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Nevil Phillips and Natalie Moore (instructed by Thomas Cooper LLP) for the Claimant

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Michael Coburn QC (instructed by Holman Fenwick Willan LLP) for the Defendant

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Hearing dates: 29, 30 January, 2, 4 February 2015

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Judgment

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The Hon. Mr Justice Popplewell :

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Introduction

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- - - - 1. - -

The Claimant ("Spar") is the registered owner of three supramax bulk carriers, the SPAR CAPELLA, SPAR VEGA and SPAR DRACO (collectively “the Vessels”). By three charterparties dated 5 March 2010 on amended NYPE 1993 forms, the Vessels were let on long term time charter to Grand China Shipping (Hong Kong) Co Ltd (“GCS”). The charterparties provided for guarantees to be issued by the Defendant (“GCL”), which is the parent of GCS. Three letters of guarantee were issued on behalf of GCL dated 25 March 2010 (“the Guarantees”).

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The SPAR DRACO was built in 2006 and was of some 53,500 mt dwt. It was chartered for minimum 35 maximum 37 months in charterers’ option with hire of US$16,500 per day payable semi monthly in advance. It was delivered into the charter on 31 May 2010. The SPAR CAPELLA and SPAR VEGA were newbuildings at a Chinese yard of some 58,000 mt dwt and were delivered into the charterparties from the yard on 6 and 12 January 2011 respectively. Those charters were for minimum 59 maximum 62 months in charterers’ option with hire of US$16,750 per day payable semi monthly in advance.

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From April 2011 GCS was in arrears in payment of hire. Spar recouped some of the arrears by exercising its lien on sub freights, but there remained substantial arrears of hire on all three vessels throughout the summer of 2011 and a chronology of missed or delayed payments. Spar called on GCL for payment under the Guarantees on 16 September 2011. On 23 September 2011 Spar withdrew the SPAR CAPELLA and terminated that charterparty. On 30 September 2011 Spar withdrew the SPAR VEGA and SPAR DRACO and terminated those charterparties.

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Spar commenced arbitration proceedings against GCS claiming the balance of hire due under the charters and damages for loss of bargain in respect of the unexpired term of the charters. Shortly prior to the hearing of the arbitration GCS went into liquidation in Hong Kong and the arbitration proceedings were stayed.

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Spar brings the present claim against GCL under the Guarantees. The amounts claimed comprise the following:

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The balance due under the charters prior to termination, quantified after credit for bunkers remaining on board and other cross claims at US$217,238.95 for the SPAR CAPELLA and US$344,431.14 for the SPAR VEGA (there was a small balance in favour of GCS on the balance of accounts for the SPAR DRACO).

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Damages for loss of bargain in respect of the unexpired term of the charters. In respect of the SPAR DRACO it was common ground that there was at the date of termination an available market for a substitute time charter for the unexpired term of the charter of about 18 months at US$13,000 per day, on the basis of which damages were quantified at US$2,739,029. In respect of the SPAR CAPELLA and SPAR VEGA it was common ground that at the date of termination there was no market for a substitute time charter for the unexpired term of the charters of about four years. Spar has quantified the damages as the difference between what it would have earned under the charters and the actual earnings from employment of the vessels to date and estimated future earnings of US$9,600 per day until expiry of the charter periods in December 2015. The calculations performed by Spar in respect of actual earnings did not in fact cover the entire period up to the hearing date but only up to 31 December 2014 with the period thereafter being treated as future earnings. The amounts claimed were:

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SPAR CAPELLA: US$7,967,879.16 to 31.12.14 and US$2,308,658.23 for future earnings to expiry, making a total of US$10,276,537.39;

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SPAR VEGA: US$8,012,272.22 to 31.12.14 and US$2,349,899.27 for future earnings to expiry, making a total of US$10,362,171.49;

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Spar’s costs of the arbitration proceedings against GCS in the sum of £319,868.19.

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GCL disputes liability on the grounds that it is not bound by the Guarantees: they were signed by Mr Jia Hongxiang (“Mr Jia”) purportedly as Board Chairman, when he was in fact at that time in the lesser position of Executive Board Chairman and is said to have had no authority to sign them on behalf of GCL. Spar contends that Mr Jia had authority to sign the Guarantees. This is an issue governed by Chinese law, on which I heard evidence from Mr Greg Yang on behalf of Spar and Ms Liu Yan on behalf of GCL. Spar contended in the alternative that Mr Jia had ostensible authority, or that GCL had ratified the Guarantees.

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GCL further submitted that it was not bound by the Guarantees because they did not comply with Chinese exchange control laws requiring the approval and registration of guarantees to overseas entities by the State Administration of Foreign Exchange (“SAFE”), which provide that the issue of an unapproved/unregistered guarantee is an offence and such guarantee is unenforceable unless the guarantor is at fault. Although the Guarantees are expressly governed by English law, GCL submitted that such illegality under Chinese law prevented their enforcement. Spar contends that Chinese law is not applicable, and that in any event the Guarantees would be enforceable as a matter of Chinese law because the fault in failing to secure registration and approval was that of GCL.

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GCL submitted in the alternative that if it was bound by the Guarantees, it was under no liability in relation to the unexpired periods of the charters: the right of withdrawal under the charters was a contractual option but there had been no breach of the charters giving rise to a right to damages at common law for repudiation or renunciation. Spar contended that it was entitled to damages for loss of bargain for such period because payment of hire was a condition of the charters; alternatively if payment of hire was an innominate term, GCS’s conduct was repudiatory and/or evinced an intention not to pay hire timeously which constituted a renunciation of the charters.

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In the further alternative GCL challenged the method of calculation of damages for the unexpired periods of the SPAR CAPELLA and SPAR VEGA charterparties. It submitted that damages should not be based on Spar’s actual earnings, but on hire which would have been earned by replacing the charters with timecharter employment, albeit that it would have required two consecutive fixtures of 30 months and about 20 months respectively, alternatively a series of shorter charters. This was not an argument that Spar had failed to mitigate its loss by acting unreasonably in not taking such time charter employment for the vessels, but an argument of law that this was the proper measure of damages. Spar disputed that this was the proper approach as a matter of law and disputed that in any event there was a market for a 30 month charter or a 20 month charter at the relevant times. On this issue, and a number of more minor quantum disputes, I heard expert evidence from brokers, Mr McDonald on behalf of Spar and Mr Lewis on behalf of GCL.

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GCL also disputed that the arbitration costs were recoverable under the terms of the Guarantees.

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Accordingly the following issues arise:

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Is GCL bound by the Guarantees? In particular:

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Did Mr Jia have actual authority?

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Did Mr Jia have ostensible authority?

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Did GCL ratify the Guarantees?

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Is non registration with SAFE relevant, and if so does it render the Guarantees unenforceable?

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Is payment of hire a condition of the charterparties?

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If not, was GCS’s conduct in relation to payment of hire a repudiation or renunciation?

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What is the correct principle for assessment of damages for a charterer’s repudiation of a time charter where there is no market for a replacement time charter of the duration of the unexpired term of the charter?

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What alternative time charter employment was available for the SPAR CAPELLA and SPAR VEGA?

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What other adjustments fall to be made, if any, to the quantum of Spar’s claim?

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Do the arbitration costs fall within the scope of liability under the Guarantees?

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Before addressing these issues I must set out the facts in more detail.

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Narrative

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I heard from Mr Ellefsen, the CEO of Spar, who was a straightforward witness upon whose evidence I felt able to rely. He explained that Spar is a Norwegian company which has grown from its inception to its current position of owning 23 mostly modern Supramax vessels. It is run with a small staff of five people with the fleet mostly time chartered out and serviced by external technical managers. Mr Ellefsen was himself responsible for fixing the Vessels. The SPAR CAPELLA and SPAR VEGA were two of eight vessels which Spar bought in the spring of 2010; they were bought two at a time, with long term employment being secured for each pair before purchasing the next two.

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Prior to these fixtures, Mr Ellefsen had not heard of GCS or GCL. They were suggested by Spar’s Norwegian brokers, RS Platou, who also had an office in Shanghai. On 1 March 2011 Mr Jan Egil Roald of RS Platou’s Norwegian office passed on to Mr Ellefsen some background information on GCS. This indicated that it was a relatively new company, established in February 2008 and commencing operations in June 2008; that it was wholly owned by GCL; that GCL had been established in April 2007 as part of the HNA Group; and that GCL was a substantial concern with registered capital of over US$100 million and subsidiaries operating businesses in container and bulk shipping, shipbuilding and repairing, air cargo, ports and terminals, and integrated logistics.

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From the outset Spar required a parent company guarantee if the vessels were to be fixed to GCS. Negotiations were conducted through Mr Roald in RS Platou’s Norwegian office via Mr Shao Heping in their Shanghai office with Mr Kong Dyong on behalf of GCS in Shanghai. By email on 2 March 2010 Mr Kong confirmed that GCL would provide a performance guarantee. Whilst fixture terms were being negotiated, Mr Ellefsen provided the required wording for the guarantee on 3 March 2010. The substantive text was in the terms in which the Guarantees were ultimately provided. At its foot it provided for signature against the text:

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Name: XXX XXX

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Title: Board Chairman

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For and on behalf of [blank]

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This format and wording was taken from a previous guarantee provided by a Chinese counterparty, which had been approved by Spar’s Norwegian lawyers. It was sent by Mr Shao to Mr Kong early on 4 March 2010 with a fixture offer for account GCS with performance guaranteed by GCL. The offer proposed naming charterers as GCS “with the attached Letter of Guarantee to be executed by [GCL] as guarantor for charterers performance.”

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Mr Kong responded to Mr Shao on the phone that the main terms proposed were agreeable but that they needed to include a subject of board approval which might take two days. An email counter offer later that day sought “Subject BOD’s approval latest COB Beijing 5 March 2010”.

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On 5 March Mr Kong emailed Mr Shao stating “Chrtrs are plsd to cfm bod subj lifted and [GCL] as gteed by issuing gtee letter (wch is on formalities for producing and wl send the original one to owr by courier once available”. The email referred to the Vessels as deemed clean and fully fixed and sought five confirmations about the Vessels’ details and a provision for the first payment of hire to be three days after delivery. Mr Kong also spoke to Mr Shao to say that the wording of the performance guarantee was “now in the process of internal procedure” and that this meant they would not be able to provide the performance guarantee the following day but would provide the original as soon as possible.

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On 8 March 2010 RS Platou sent a final recap, which still included the subject board approval to be lifted by cob 5 March. Mr Kong responded the following day requesting deletion on the grounds that the board of directors approval subject had already been lifted. I conclude from this exchange and from Mr Kong’s email of 5 March 2010 that the board of directors of GCS had considered and approved the charterparty terms by close of business on 5 March 2010.

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The charters were drawn up on amended NYPE 1993 forms which were signed on behalf of GCS and Spar. They were on identical terms for the three Vessels save as to the rate of hire, period, delivery laycan and vessel details. It is sufficient to set out the relevant terms of the SPAR CAPELLA charter. It was dated 5 March 2010, and provided in line 1 that it was made and concluded in Oslo. Lines 5-6 described the charterers as “[GCS] [Shanghai address], performance guaranteed by [GCL] (se attached Performance Guarantee Letter)”. Clause 10 provided for the charterers to pay hire at the rate of US$16,750 per day and pro rata for part of a day 15 days in advance. Clauses 23 and 61 provided for the owners’ lien on all cargoes, sub-freights, sub-hire and bunkers on board for amounts due under the charter, and that in the event of owners exercising their liberty to withdraw the vessel, bunkers on board would become owners’ property with a duty to give charterers credit for their value. Clauses 45 and 55 provided for English law and London arbitration. Clause 77 provided that “If the vessel is off-hire for more than 60 days continuously, Charterers have the option to cancel this Charter Party.” Clause 11 provided:

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Hire Payment”

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Payment

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Payment of Hire shall be made so as to be received by the Owners or their designated payee as per Clause 50 [which identified the owners’ account at a bank in Norway and provided for the first payment to be made within 3 banking days of delivery] in United States Currency, in funds available to the Owners on the due date, 15 days in advance … Failing the punctual and regular payment of the hire, or on any fundamental breach whatsoever of this Charter Party, the Owners shall be at liberty to withdraw the Vessel from the service of the Charterers without prejudice to any claims they (the Owners) may otherwise have on the Charterers.

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At any time after the expiry of the grace period provided in Sub-Clause 11 (b) hereunder and while the hire is outstanding, the Owners shall, without prejudice to the liberty to withdraw, be entitled to withhold the performance of any and all of their obligations hereunder and shall have no responsibility whatsoever for any consequences thereof, in respect of which the Charterers hereby indemnify the Owners, and hire shall continue to accrue and any extra expenses resulting from such withholding shall be for the Charterers' account.

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Grace Period

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Where there is a failure to make punctual and regular payment of hire due to oversight, negligence, errors or omissions on the part of the Charterers or their bankers, the Charterers shall be given by the Owners 3 clear banking days … written notice to rectify the failure, and when so rectified within those 3 days following the Owners' notice the payment shall stand as regular and punctual.

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Failure by the Charterers to pay the hire within 3 days of their receiving the Owners' notice as provided herein, shall entitle the Owners to withdraw as set forth in Sub-clause 11(a) above."

- - - - - - - - 21. - -

On 22 March 2010 Mr Shao pressed Mr Kong to arrange for the letters of guarantees to be issued. He replied on the same day that they were “still on the way” and that he would “try to complete” within that week. On 25 March 2010 Mr Kong emailed Mr Shao stating “After chtrs completion of formalities, pls let owners confirm attached log in order, then obtain for signature." The attachment contained the same text as that sent by Spar on 3 March 2010. Its form differed only in that it was set out on GCL’s letter heading and provided at its foot for signature:

- - - - -

“Name: MR JIA Hongxiang

- - - - -

Title: Board Chairman”

- - - - - - - - 22. - -

Mr Ellefsen conveyed his approval of the letter of guarantee in that form through the brokers later on 25 March 2010.

- - - - 23. - -

The Guarantees were signed by Mr Jia and supplied to RS Platou in Shanghai, together with signed originals of the charterparties, who couriered them to RS Platou Norway on 30 March 2010. Mr Jia’s signature was not accompanied by GCL’s “chop”, ie the company seal.

- - - - 24. - -

The three Guarantees were in identical form save for the name of each vessel and provided:

- - - - -

“……..

- - - - "1) - -

We hereby unconditionally and irrevocably guarantee as primary obligor the full and timely performance by the Charterers of each and every obligation of the Charter Party, and in the event of any one or more defaults in performance by the Charterers, we undertake on your first written demand to promptly rectify each and every default and hereby accept the responsibility for any liability, losses or damages that you suffer as a result or arising out of any such default.

- - - - 2) - -

We hereby waive due diligence, notice by defaults, and other notice or demand of any kind, and consent to any and all extensions of time, indulgence or waiver of rights under the Charter Party and to any modifications, variation or amendment of the said Charter Party. We shall not be released or discharged from our liability hereunder by any of the above or any change in the shareholding relationship between us and the Charterers.

- - - - 3) - -

This guarantee shall be governed by and construed in accordance with English law…

- - - - -

Name: MR JIA Hongxiang [beside which Mr Jia’s signature appeared]

- - - - -

Title: Board Chairman

- - - - -

For and on behalf of [GCL]”

- - - - - - - - 25. - -

The SPAR DRACO was delivered into the charterparty on 31 May 2010, followed by the SPAR CAPELLA on 6 January 2011 and the SPAR VEGA on 12 January 2011.

- - - - 26. - -

Hire was paid punctually by GCS on all three vessels until April 2011.

- - - - 27. - -

On 21 April 2011, US$248,208.48 fell due under the SPAR CAPELLA charter. It was not paid until 27 May 2011, by which time the next two SPAR CAPELLA payments had been missed. On 26 April 2011 US$245,145.98 fell due under the SPAR DRACO charter. It was not paid until 18 May 2011, and then only in part, by which time the next SPAR DRACO payment had been missed. On 27 April 2011, US$245,708.48 fell due under the SPAR VEGA charter. It was not paid until 16 June 2011, some 50 days late, by which time the next three SPAR VEGA payments had been missed.

- - - - 28. - -

On 6 May 2011 the next instalment of US$245,708.48 fell due on the SPAR CAPELLA and was not paid.

- - - - 29. - -

On 10 May 2011 Mr Shao had a meeting with Mr Kong who apologised for GCS’ failure to pay hire. Mr Kong explained that they had a difficulty making punctual payment of hire because GCS’ capesize vessels had been chartered in at a rate higher than the current market and so payment of hire on those vessels was taking up most of its cash. Mr Kong said that with support and help from GCL and HNA they were working on a structure to separate the capesize vessels from their other smaller ships so as to ensure that hire for the latter was paid on time. He gave the opinion that GCL and HNA would not allow GCS “to go bankrupt” and Mr Shao was convinced by this. Mr Shao said that Spar might have to take “more serious action” in the light of the failure to make punctual payment, to which Mr Kong’s response was that he would not have any grounds for complaint, but he strongly wished that Spar would not do so. He said that he regarded Spar as “a best partner” and would put Spar hire as “the first priority”.

- - - - 30. - -

On 11 and 12 May 2011 the next instalments fell due for the SPAR DRACO and SPAR VEGA respectively. No payment of hire was made.

- - - - 31. - -

On 13 May 2011 GCS emailed RS Platou apologising for the late payment. The email suggested that a loan from “our group company” was anticipated soon and that the outstanding May hire payment would be made the following week. GCS sought Spar’s understanding in the light of the declining market rates. On 16 May GCS sent a further email, again apologising for late payment, asking for Spar’s tolerance to allow more time to raise funds, and stating that GCS would endeavour to pay the outstanding hire as soon as it could.

- - - - 32. - -

On 18 May 2011 GCS made part payment of the SPAR DRACO instalment due on 26 April 2011 and paid the outstanding first May instalment. On 20 May 2011 GCS emailed that it was working actively on both short term and long term financing schemes, and that it believed it would shortly be able to settle all outstanding debt.

- - - - 33. - -

Following further missed instalments, GCS emailed on 27 May 2011 stating that it was working on a financing scheme with its parent company and expected the first major injection of capital no later than 15 June. GCS asked for a few more weeks’ patience until the financing situation had been resolved and promised payment of another instalment in the coming week with the remaining outstanding balance being paid “without undue delay following our parent company’s capital injection over the next few weeks.” No payment was made in the following week.

- - - - 34. - -

On 2 June 2011 GCS reiterated that it was working on a financing scheme with its parent company and expected the first major injection of capital no later than 15 June.

- - - - 35. - -

On 14 June 2011 someone in the business/law department of GCS told Ms Li Cen at RS Platou that GCS had made progress on renegotiating rates with other owners but had no intention of trying to renegotiate rates with Spar; that it would pay at least two instalments on all three Vessels by the end of the week; and that there was a plan, awaiting approval by top management, to pay all instalments punctually thereafter and to pay off the arrears in three or four payments in July and August.

- - - - 36. - -

In a phone conversation the following day, 15 June 2011, Mr Liu Zheng of GCS’ business/law department told Mr Shao at RS Platou that contrary to the previous day’s promise, GCS only had enough to pay two SPAR DRACO instalments and were not sure how much more they would receive from the group which would be convertible into foreign currency; that they would try to pay Spar a certain amount of money each week until the arrears were paid off which it was hoped would be in July/August. In both this conversation and the one the previous day with Ms Li Cen, GCS said that other owners had received payments as a necessary part of renegotiating lower rates with them. An email from GCS the same day, 15 June 2011, asked Spar to withdraw the notice of lien on sub-freights of which notice had been given in respect of the SPAR DRACO. GCS said that some funds had been received from its parent company but that it would take a few days to arrange foreign exchange; and that there would be at least one hire payment on the SPAR DRACO that week.

- - - - 37. - -

The following day, 16 June 2011, GCS paid the outstanding April instalment on the SPAR VEGA and two instalments on the SPAR CAPELLA. An email of the same day proposed a payment plan which involved punctual payment of all hire instalments when they fell due thereafter and payment of the arrears, then standing at about $2.2 million in two equal instalments on 31 August and 30 September. Spar rejected this proposal, complaining that GCS were effectively treating Spar as a bank from whom it was borrowing money without interest or security. Spar proposed a slightly more ambitious payment plan with the remaining arrears being paid off in two equal instalments on 31 August and 30 September, with arrears to carry interest and the debt to be secured by an HNA guarantee. GCS rejected this proposal.

- - - - 38. - -

On 25 and 26 June 2011 instalments fell due for the SPAR DRACO and SPAR VEGA respectively, neither of which was paid by GCS. The SPAR DRACO instalment was paid four days late on 29 June 2011.

- - - - 39. - -

By the end of June the situation was that for the SPAR CAPELLA the April instalment, the first of the two May instalments, and the second June instalment had been paid, but the second May instalment and first June instalment had not been paid; for the SPAR VEGA, neither the May or June instalments had been paid; and for the SPAR DRACO, the April and first May instalments had been paid (22 days and 7 days late respectively) but the second May and first June payment had not been paid. The sums outstanding were US$778,717.36 for the SPAR CAPELLA, US$1,053,567.40 for the SPAR VEGA and US$606,746.66, for the SPAR DRACO amounting in total to something approaching US$2.5 million.

- - - - 40. - -

The next hire instalments for the Vessels were paid by GCS on 6 July, 11 July and 12 July respectively, in each case a day late.

- - - - 41. - -

On 14 July 2011 Ms Li Cen of RS Platou reported that there had been a meeting two weeks earlier between HNA “head quarter” and GCL. What had happened at the meeting was that Adam Tan, the number 3 in HNA and now in charge of GCL stated that he was very unsatisfied with GCL; and that “HNA could afford to lose the money but would not afford to lose the face”. It was reported that “Adam Tan has given the instruction to solve the issues with Spar asap, and this is not a big amount of money anyway.” There is no firm evidence as to who told Ms Li Cen of the fact and content of the meeting but the email suggests that she and her colleagues were on good terms with Mr Tan and another senior person within the HNA/Grand China group and I have no reason to doubt that her email is an accurate report of what she or her colleagues were told had happened at the meeting, or that what they were told was an accurate account of the meeting.

- - - - 42. - -

By the end of July 2011 the payment position had improved a little from Spar’s point of view compared to the previous month. In respect of the SPAR CAPELLA, the outstanding May instalment was paid in full and the outstanding first June payment was part paid. The July instalments were paid in full, albeit one day and two days late respectively. The outstanding balance at the end of the month was reduced to US$382,898.09. In respect of the SPAR VEGA, there was no payment of the outstanding May and June instalments, but the July instalments were paid in full, albeit one day late on the first occasion. The balance outstanding at the end of the month was US$872,025.80. In respect of the SPAR DRACO, there was no payment of the outstanding May or June instalments, but the July instalments were paid in full, albeit a day late on the first occasion. The balance outstanding at the end of the month was US$609,420.66. The total outstanding balance had therefore reduced to about US$1.8 million, and the July instalments had been paid, albeit mostly late. On 26 July 2011 GCS repeated what it described as its promise in June (16 June: see above), that the arrears would be paid off in full in August and September.

- - - - 43. - -

In August 2011 the SPAR DRACO was in drydock throughout the month. For the SPAR CAPELLA the August instalments were paid four and five days late respectively. For the SPAR VEGA, the first August instalment was paid five days late and the second instalment due on 25 August remained unpaid at the end of the month. The total outstanding on the three Vessels at the end of the month was almost US$2 million, a deterioration from the position at the end of July, which would have been greater had not Spar successfully made recoveries from sub-charterers by exercising its lien.

- - - - 44. - -

GCS did not, as promised, pay off half of the arrears by 31 August 2011.

- - - - 45. - -

On 1 September 2011 GCS paid the outstanding May instalments on the SPAR VEGA.

- - - - 46. - -

On 2 September 2011 Spar emailed GCS through the broking channel giving notice of Spar’s intention to call on the Guarantees and threatening High Court proceedings in London if 50% of the arrears was not paid off by 8 September. At this time the balance due on all three Vessels stood at about US$1.7 million.

- - - - 47. - -

The SPAR CAPELLA instalment of hire due on 3 September 2011 went unpaid. On 6 September 2011 a message from GCS through the broking channel was to the effect that it was doing everything possible to reduce the outstanding hire step by step, that it was “struggling”, that it would try its best, but that it hoped Spar would understand. Spar responded drawing attention to GCS’ broken promises and asking GCS and its parent company to give a clear demonstration that they stood by their obligations.

- - - - 48. - -

On 6 September 2011 GCS made a part payment towards the outstanding August instalment for the SPAR VEGA and on 8 September 2011 GCS paid the outstanding instalment for the first half of June for that vessel.

- - - - 49. - -

Instalments due on the SPAR DRACO and SPAR VEGA on 8 September and 9 September respectively went unpaid.

- - - - 50. - -

On 9 September 2011 GCS emailed Spar through the broking channel stating that it was always trying its best to fulfil its payment obligations under the charters; that capital from its parent company was injecting into its account gradually but it took time to arrange for foreign exchange; that Spar would be placed “in the top list of [its] payment schedule” upon receipt of the money; and that there was therefore no need to call on the Guarantees. The email gave no indication of how much was expected to be received from the parent company, or when, and made no concrete proposal for paying hire punctually or paying off the arrears. Spar responded that unless GCS reconsidered its position and made a concrete proposal by Monday 12 September it would call on the Guarantees.

- - - - 51. - -

An email from RS Platou to Spar of 14 September 2011 suggests that Mr Shao was told by GCS that it was having an internal meeting that afternoon but that Spar should not expect an encouraging reply because of GCS’ “bad” lack of cash flow. The same day GCS sent two emails asking Spar to lift its lien on sub-freights in respect of all three vessels. One of the emails apologised for the unpaid hire and the “some inconvenience” caused, and referred to GCS’ “present cash flow situation”. GCS offered to pay the sub-hire to Spar when received if the liens were lifted.

- - - - 52. - -

On 15 September 2011 GCS explained its failure to make a payment on the SPAR DRACO as due to the sub-charterer’s non payment of hire.

- - - - 53. - -

On 16 September 2011 Spar sent three letters, one in respect of each vessel, by telex addressed to GCL, giving notice of defaults under the charters in respect of the non payment of hire, identifying the amount outstanding and calling on GCL to fulfil its obligations under the Guarantees by paying those amounts by 23 September 2011. The amounts outstanding were US$448,354.81 for the SPAR CAPELLA, US$497,276.29 for the SPAR VEGA and $601,016.05 for the SPAR DRACO, totalling some US$1.5 million. GCL asserts that such letters were not received because it had moved from the address used on the letters, which was that given in the Guarantees, to a new office in Shanghai. However GCL’s new letterhead reveals that it maintained the same fax number at its new address as before. Since the letters were sent by fax, I conclude that they were received by GCL at its new office in Shanghai. The letters attached copies of the Guarantees.

- - - - 54. - -

On 18 September 2011 another instalment of hire due for the SPAR CAPELLA went unpaid.

- - - - 55. - -

On 22 September 2011 Mr Shao of RS Platou spoke to Mr Luo Zhipeng, the general manager of GCL’s compliance department, and followed the conversation with an email. It referred to the claim on the Guarantees in the letters recently sent to GCL, and urged GCL to pay all the arrears by 23 September, or at least to pay half and put forward concrete proposals for payment of the balance. Mr Luo Zhipeng responded by email on 23 September 2011. He said that 23 September was unrealistic because of the financial pressure on the group to pay off substantial interest owed to banks which was more vital to the survival and sustainable development of the group. He stated: “I request the owners be more patient until October when financial support will come, in view of the relatively small sum and long-standing cooperative relationship”. Such a response gave Spar no cause for confidence that there would be any substantial payment in the immediate future. Mr Luo Zhipeng did not question the existence or validity of the Guarantees; nor did he query the reference in the email to which he was responding to the letters recently sent claiming on the Guarantees and imposing the 23 September deadline, which provides further confirmation that the letters of 16 September were indeed received by GCL.

- - - - 56. - -

GCS sent an email the same day, 23 September 2011, stressing that it had agreed to sub-hire on the vessels being paid directly to Spar. It said it was making efforts to pay “the further hire payment” and believed that it would be effected after China National Day (which is 1 October). It is unclear which instalment or instalments this was intended to refer to. The email concluded: “In the meantime, we have report owns request to GCL and be informed that the financial support will be arrival at October. Please owns remain patient until sufficient financing is in place”.

- - - - 57. - -

Throughout the period from April to September 2011 Spar had regularly been sending anti-technicality notices in compliance with clause 11(b) of the charterparties for the missed hire payments.

- - - - 58. - -

On the evening of 23 September 2011 Spar gave notice of withdrawal of the SPAR CAPELLA in accordance with clause 11 of the charterparty with immediate effect. The notice expressly reserved Spar’s right to claim damages from GCS as a consequence of “charterers fundamental failure to observe the terms of the subject c/p, which clearly show that charterers no longer intend to be bound by the terms of the c/p”. The last payment of any hire in respect of the vessel had been almost a month earlier on 24 August 2011, since which time two further instalments had fallen due and remained unpaid.

- - - - 59. - -

On 29 September 2011 GCS sought to explain its failure to pay a SPAR DRACO hire instalment as due to the remitting bank ceasing business during a typhoon.

- - - - 60. - -

On 30 September 2011 Spar gave notice of withdrawal of the SPAR VEGA and SPAR DRACO in similar terms to the withdrawal notice for the SPAR CAPELLA. For the SPAR DRACO, the last payment of hire had been on 25 July 2011 before she went into drydock. After she came out of drydock two further instalments of hire had fallen due in September and remained unpaid. For the SPAR VEGA, the last payment of hire by GCS had been of the first September instalment due on 9 September (19 days late) with no payment for the instalment due on 24 September.

- - - - 61. - -

Between April 2011 and termination of the charters at the end of September 2011 Spar had reduced the arrears of hire by over US$1 million by collecting sub-freight/sub-hire in exercise of its lien. The amounts so collected, in some cases with the agreement of GCS, comprised US$534,479.11 for the SPAR CAPELLA, US$514,669.22 for the SPAR VEGA and US$81,181.90 for the SPAR DRACO.

- - - - 62. - -

After allowing credit for these recoveries, the total balance of hire remaining outstanding at the date of termination of the charters was US$1,318,926.02

- - - - 63. - -

Following termination the subsequent employment of the Vessels was as follows.

- - - - 64. - -

As to the SPAR CAPELLA:

- - - (1) - -

On 24 September 2011 Spar entered into a substitute fixture with the existing subcharterers, Flame SA, for a short period, to enable discharge of the cargo then loaded on board, at a daily rate of US$14,275.

- - - - (2) - -

On 29 September 2011, Spar fixed a time charter with Swiss Marine Asia for a term of 12 months on a floating rate of 103.75% of the daily Baltic Supramax Index. The Vessel was delivered into the charter on 8 October 2011, after completion of the discharge of cargo in South China and re-delivery of the vessel from Flame SA. The Vessel was redelivered on 16 September 2012.

- - - - (3) - -

From 16 September 2012, Spar entered the Vessel in the Navig8 Pool, for a minimum period of 12 months. Mr Ellefsen gave evidence that the SPAR CAPELLA was still in the Navig8 pool at the time of the hearing, but that Spar had recently given notice to withdraw it.

- - - - - 65. - -

As to the SPAR VEGA:

- - - (1) - -

On 29 September 2011 Spar entered into a 12 month substitute fixture with Swiss Marine Asia, for the same duration and on similar terms as those agreed in respect of the SPAR CAPELLA. The vessel was re-delivered in mid-October 2012.

- - - - (2) - -

The vessel was placed in the Navig8 Pool from 16 October 2012 and remained in the pool until November 2014.

- - - - (3) - -

On 18 November 2014 Spar entered into a charterparty with Centurion Bulk Pte Ltd for a minimum period of 40 days at a rate of $10,000 per day. Mr Ellefsen gave evidence that the vessel was re-delivered at the beginning of January 2015 and had subsequently been employed in a new charter going into the Persian Gulf at a daily rate of $6,000.

- - - - - 66. - -

As to the SPAR DRACO:

- - - (1) - -

On 5 October 2011 Spar entered into a substitute short-term fixture with JSW Ispat Steel Ltd for a term of 10 - 15 days at a daily rate of US$14,100.

- - - - (2) - -

Following re-delivery of the vessel, Spar entered into a new fixture with Allied Maritime Inc for 4 - 6 months at a rate of US$14,250 per day.

- - - - (3) - -

On 23 February 2012 Spar entered into a new 4 - 6 month fixture with D'Amico Dry Ltd at $11,500 per day. The vessel was delivered on 16 March 2012 and re-delivered to Spar on 6 June 2012.

- - - - (4) - -

On 4 September 2012 Spar entered into an agreement for the SPAR DRACO to be placed into the Navig8 Pool for a minimum period of 12 months.

- - - - - Issue 1: Is GCL bound by the Guarantees? - - -

Actual authority: Chinese law

- - - - - 67. - -

The question whether Mr Jia had actual authority to bind GCL to the Guarantees is governed by Chinese law. The Chinese law experts also addressed principles of apparent authority and ratification, but it is common ground that such issues are not governed by Chinese law.

- - - - 68. - -

The Articles of Association of GCL include the following:

- - - - -

“Article 24

- - - - -

The Board of Directors shall be the decision-making organ of the Company as well as the standing organ of powers of the Board of Shareholders. The Board of Directors shall be accountable to the Board of Shareholders.

- - - - -

Article 25

- - - - -

The Board of Directors of the Company shall comprise of 5 directors, among whom there shall be one Board Chairman, one Executive Board Chairman and three Vice Board Chairmen. The term of office shall be 3 years. A director may serve consecutive terms upon expiration if re-elected.

- - - - -

Article 26

- - - - -

The directors shall be elected by the Board of Shareholders. The Board Chairman, the Executive Board Chairman and the Vice Board Chairmen shall be elected by the Board of Directors. The Board Chairman is the legal representative of the Company. The term of office of the Board Chairman, the Executive Board Chairman and the Vice Board Chairman shall be 3 years and may serve consecutive terms upon expiration if re-elected.

- - - - -

Article 30

- - - - -

The Board of Directors shall exercise the following functions and powers:

- - - (1) - -

Convene shareholders’ meetings

- - - - (2) - -

Execute resolutions passed in shareholder’s meetings;

- - - - (3) - -

Review and determine the Company’s development plans, annual production and operation plans, financial budget and accounting proposals, profit distribution proposals and proposals for making up losses;

- - - - (4) - -

Put forward proposals for the increase or reduction of the Company’s registered capital, issuance of bonds, and for mergers, divisions, dissolution and liquidation of the Company;

- - - - (5) - -

Appoint General Manager and, upon the General Manager’s nomination, appoint the senior managerial personnel including the Vice General Manager and financial officers of the Company;

- - - - (6) - -

Ascertain the operational and managerial system of the Company, including the labour and wages system, personnel management system and financial affairs management system;

- - - - (7) - -

Examine and approve proposals regarding structural establishment and manning quotas proposed by the General Manager;

- - - - (8) - -

Examine and approve important operational decisions of the Company;

- - - - (9) - -

Other functions and powers authorised in the shareholders’ meeting.

- - - -

Article 31

- - - - -

The Board Chairman is the legal representative of the Company and shall exercise the following functions and powers:

- - - (1) - -

Convene and preside over meetings of the Board;

- - - - (2) - -

Monitor the execution of the resolutions passed at the Board meetings;

- - - - (3) - -

Sign the Capital Contribution Certificates, important contracts and other important documents of the Company;

- - - - (4) - -

Give guidance and instructions regarding important business activities of the Company in the intercession of the Board of Directors;

- - - -

The Executive Board Chairman and Vice Board Chairmen shall assist the Board Chairman in his or her work. If the Board Chairman is unable to perform his or her duties, he or she can authorise the Executive Board Chairman or the Vice Board Chairmen to carry out part or all of the Board Chairman’s duties.”

- - - - - - - - 69. - -

There was a large measure of agreement between the Chinese law experts. It was established that:

- - - (1) - -

Article 13 of the Company Law provides for a company to have a Legal Representative who is registered in a publicly available register. The Legal Representative is to be the Board Chairman, the Executive Board Chairman or the Manager, in accordance with the company’s articles of association. Articles 26 and 31 of GCL’s articles of association provided for the Chairman to be the Legal Representative. Mr Li Qing was the Chairman of GCL March 2010 and therefore the Legal Representative pursuant to its articles of association at the time the Guarantees were executed.

- - - - (2) - -

Under Article 38 of the General Principles of Civil Law PRC (1987) (“GPCL”), a company is bound by the acts of its Legal Representative exercising his powers in accordance with the articles of association. Mr Li therefore would have had authority to enter into the Guarantees if in so doing he was exercising powers he had under the articles.

- - - - (3) - -

Acts of a person other than the Legal Representative will also be binding if the company has authorised that other person to perform the acts. This is the effect of Article 63(1)(2) of the GPCL which provides:

- - - - -

“… legal persons may perform civil juristic acts through agents. An agent shall perform civil juristic acts in the principal’s name within the scope of the power of agency. The principal shall bear civil liability for the agent’s acts of agency.”

- - - - - - - - (4) - -

Accordingly if Mr Li as Legal Representative had authority to enter into the Guarantees exercising powers he had under the articles, and authorised Mr Jia to execute the Guarantees, GCL would be bound by them. The possibility of such delegated authority is expressly recognised in article 31 of GCL’s articles of association.

- - - - (5) - -

Acts of a person other than the Legal Representative will also be binding if the person performs an act in the name of the company, with the knowledge of the company, and the company makes no objection. This is the effect of Article 66 of GPCL which provides:

- - - - -

“The principal shall bear civil liability for an act performed by an actor with no power of agency, beyond the scope of his power of agency or after his power of agency has expired, only if he recognizes the act retroactively. If the act is not so recognized, the performer shall bear civil liability for it. If a principal is aware that a civil act is being executed in his name but fails to repudiate it, his consent shall be deemed to have been given.”

- - - - - - - - (6) - -

Contracts will bind a company if signed or sealed by the relevant person. It is not necessary that they should be both signed and sealed. Whereas it was common in the past for the company seal or “chop” to be attached to documents, the practice was not universal and has become less frequent in more recent years in relation to international contracts.

- - - - - 70. - -

Three relevant aspects of Chinese law were in dispute. The first was that Ms Liu contended that the articles of association of GCL required a resolution of the board of directors before the Guarantees could validly be entered into, by reason of article 30(8), which includes within the functions and powers of the board “examining and approving important operational decisions of the company”; accordingly Mr Li did not have, and could not confer on Mr Jia, any authority to execute the Guarantees in the absence of such a resolution. Mr Yang disputed this interpretation of the articles of association and contended that the Legal Representative has power under article 31(3) to execute important contracts and other important documents of the company irrespective of whether there has been a board resolution. Mr Yang’s evidence was also that, even if a guarantee is issued otherwise than in accordance with the articles of association, that does not render it null and void and it remains binding on the company. He identified a decision by the Beijing Higher People’s Court, a decision recommended by the Supreme People’s Court in its published bulletin, which stated and applied this principle. Decisions made by the Supreme People’s Court, or approved by it, are treated as authoritative.

- - - - 71. - -

On this issue I prefer the evidence of Mr Yang. Ms Liu’s contention only really emerged in the course of her oral evidence at the hearing; it was not a point taken in either of her written reports or at the experts’ meeting, although if it were a valid point it would have been critical to the questions she was asked to address as to whether GCL was bound by the Guarantees. In her first report she was unequivocal in stating that if the Guarantees were signed by the Legal Representative they would “certainly” bind the company, without any qualification of the need for a board resolution. At the experts’ meeting she agreed that the Legal Representative’s behaviour in the name of the company bound the company “unconditionally”. In her second report she mentioned articles 30(8) and 31(3) of the articles of association and the lack of a board resolution but only for the purposes of making the point that Mr Jia had not been given any express authority to sign the Guarantees, not in support of a wider and more general point that GCL could not be bound in the absence of a board resolution whatever express authority was conferred on Mr Jia by Mr Li.

- - - - 72. - -

Secondly Mr Yang’s evidence was that there was an established principle that a company was bound by acts of “other personnel” of sufficient seniority (which would include Mr Jia) if they were performed in the course of duty related activity, irrespective of any authorisation by the Legal Representative. He explained that this was necessary to enable normal business transactions to take place because contracts and business commitments are normally made by personnel at management level and counterparties must be able to assume that such a person has authority. He said that the principle emanated from Article 43 of the GPCL and Article 58 of the Opinions of the Supreme People’s Court on Several Issues concerning the implementation of the General Principles of the Civil Law of the People’s Republic of China (Trial Implementation) (“the SPC Opinions”) which provide respectively:

- - - - -

Article 43 GPCL

- - - - -

“An enterprise as legal person shall bear civil liability for the business activities of its legal representatives and other personnel.”

- - - - -

Article 58 of the SPC Opinions

- - - - -

“The legal representative of an enterprise legal person and other personnel who engage in business activities in the name of the legal person and cause economic damages to others, the enterprise legal person shall undertake civil legal liabilities.”

- - - - - - - - 73. - -

Mr Yang drew attention to two recent cases decided by the Supreme People’s Court in 2013 which he said illustrated the application of this principle, in which companies had been held bound by duty related activities of “other personnel” at management level. The first was the Dunhuang Company v Bang Jun Company case, in which a company was held to be bound by a contract signed by its vice general manager without any special authority from the Legal Representative, on the grounds that he was performing a duty related activity. Although Article 43 GPCL and Article 58 of the Opinions were not specifically mentioned in the judgment, Mr Yang’s evidence was that the duty related activity language and analysis is well known shorthand for the concepts in those articles. The second SPC decision relied on was the Jia Heng Company case, in which a company was held to be bound by construction confirmation certificates signed by its superintendent engineer on site on the grounds that he was performing a duty related activity.

- - - - 74. - -

Ms Liu accepted that Article 43 GPCL and Article 58 of the SPC Opinions were relevant, but expressed her opinion as being that that they, and the cases referred to by Mr Yang, were simply aspects of the principle that a company is bound by those to whom the Legal Representative has delegated actual authority. She relied on a decision of a regional court, the Jiangsu High Court, which Mr Yang dismissed as of no relevance or authority.

- - - - 75. - -

Again I prefer the evidence of Mr Yang on this issue. Ms Liu had not given any consideration to these articles until they were drawn to her attention by Mr Yang in his first report. This was one of a number of aspects of her evidence which gave me less confidence in her opinions than those of Mr Yang, others being her last minute espousal of a requirement for a board resolution, and the introduction, again for the first time in her oral evidence, of reference to and reliance on Article 50 of the Contract Law. I regard Mr Yang’s view as being supported by the Dunhuang Company v Bang Jun Company case, in which the vice general manager had been “designated” for “participation” in the relevant project but not “authorised to sign [the contract].” It does not therefore appear to be a case of a chain of delegated express authority from the Legal Representative.

- - - - 76. - -

Thirdly, there was a dispute as to the potential applicability of the principle, emanating from Article 66 of GPCL, that if a principal is aware that a civil act is being executed in his name but fails to repudiate it, his consent shall be deemed to have been given. Spar characterised this as a principle akin to implied authority, and therefore an aspect of actual authority which is governed by Chinese law. GCL contended that this was an aspect of Chinese law akin to ostensible authority and therefore of no relevance because questions of ostensible authority are governed by English law as the putative proper law of the Guarantees. The dispute between the parties is therefore not so much an issue of Chinese law as an issue of categorisation for the purposes of the application of English conflict of laws rules, albeit informed by the Chinese law on the nature and content of the principle.

- - - - 77. - -

On this issue I prefer the submissions of Spar. The relevant part of the article requires two elements. The first is contemporaneous knowledge by the principal: the article is directed to situations in which the principal knows that the civil act “is being executed in his name”, i.e. at the time of its execution. It is distinct from any later ratification which is dealt with earlier in the article. Secondly there must be an absence of repudiation by the principal. Again this is directed to the time of execution. The repudiation does not have to be made or communicated to the other party to the contract or to anyone in particular in order to prevent the principle applying. What is required is a failure to disavow that the person who is purporting to bind the company is entitled to do so. The effect of a lack of repudiation is that the principal is “deemed” to have consented to the person who is purporting to bind him in fact doing so. It is a form of deemed actual authority based on knowledge and silence: the combination means that the principal can be taken to have given his authorisation. In his first report Mr Yang described it as “implied authority”, before the current debate about categorisation emerged, and for the reasons explained I regard this as the correct categorisation from an English conflict of laws point of view. The principle is not akin to ostensible authority which is governed by the putative proper law of the contract. Both Mr Yang and Ms Liu identified a separate principle of ostensible authority under Chinese law which arises under Article 49 of the Contract Law and Article 13 of the SPC Opinions, and is unrelated to Article 66 of the GPCL.

- - - - 78. - -

Applying these principles, Mr Jia’s signatures on the Guarantees binds GCL if it is established that:

- - - (1) - -

Mr Li expressly authorised Mr Jia to sign them; or

- - - - (2) - -

Mr Li knew that Mr Jia was signing them and purporting to bind GCL when they were executed, but did nothing to repudiate Mr Jia’s authority to do so; or

- - - - (3) - -

Irrespective of any authorisation or knowledge on the part of Mr Li, Mr Jia was performing a duty related activity in signing the Guarantees.

- - - - -

Actual authority: the facts

- - - - - 79. - -

GCL did not call Mr Jia or Mr Li. It sought to rely on a statement from Mr Li that he had no knowledge of the Guarantees being signed or provided, and had not authorised Mr Jia to do so. Spar submitted that other evidence made a very powerful circumstantial case to the contrary; and that no weight should be attached to Mr Li’s statement given Mr Li’s unwillingness to have this evidence tested by cross examination.

- - - - 80. - -

Leaving to one side for the time being the statement of Mr Li, the following aspects of the evidence give rise to a very strong inference that Mr Li did know of the Guarantees at the time they were signed, and authorised Mr Jia to sign them; or at the very least that Mr Li knew that Mr Jia was signing them so as to purport to bind GCL and did nothing to repudiate it:

- - - (1) - -

On 4 March 2010 GCS imposed a “subject BOD” approval and subsequently confirmed on 5 March 2010 that it had been lifted. I have already expressed my conclusion that the obvious inference from this exchange, and from the further exchange on 8 March 2010, is that a board resolution of GCS had taken place on 5 March 2010 following conclusion of the fixture negotiations, in order to give or withhold approval of GCS entering into the charters. Mr Coburn submitted that the fact that the subject was lifted did not necessarily mean that a board meeting had taken place. But there would have been little purpose in imposing the subject in the first place unless board approval was regarded as required. The significance of this is that Mr Li was not only Chairman of GCL, but was also at the time a director of GCS, who would have attended such a board meeting in that capacity and participated in giving approval on behalf of GCS. The fixture terms made very clear that GCS’s obligations were to be guaranteed by GCL and Mr Li could not have been unaware of this as a member of GCS’s board considering approval of the charters. He must have known that Guarantees were required to be, and would be, given on behalf of GCL.

- - - - (2) - -

On 5 March 2010 Mr Kong of GCS said that the Guarantees were “on formalities for approving”, and “now in the process of internal procedure” which suggests that GCL’s internal procedures were being engaged. If these required authorisation from Mr Li, the natural inference is that the procedures were followed and such authorisation was sought and granted before any Guarantees were provided. Mr Kong confirmed on 25 March 2010 that the formalities had been completed. The natural inference is that whatever authority was required by internal procedures for the execution of the Guarantees by whoever was to sign them had been obtained.

- - - - (3) - -

Mr Jia signed the Guarantees. Mr Yang’s unchallenged evidence was that Mr Li’s background was in aviation, whereas Mr Jia’s was in shipping. It would therefore have been natural for Mr Jia to be in charge of executing Guarantees for long term time charters. There is no evidence which suggests that Mr Jia was the kind of man who would execute guarantees without being authorised, or of any reason why he would have done so in this instance. The fact that he did so over the title of Chairman is consistent with his not noticing or being bothered about that inaccuracy given that the draft was prepared by Spar and would have been presented to him in that form. Mr Coburn referred me to some internet material which raised the suggestion that Mr Jia had subsequently been accused of bribery in relation to a different charter, but Mr Coburn made clear that he did not accuse Spar of involvement in any bribery, and GCL could have been expected to adduce evidence if there were any grounds for even suspicion of bribery in relation to these charters or Guarantees.

- - - - (4) - -

Mr Jia had executed guarantees on behalf of GCL which guaranteed GCS’s charter obligations on at least six other occasions whilst he was Executive Board Chairman in 2010:

- - - (a) - -

On 28 January 2010 Mr Jia signed a guarantee on behalf of GCL guaranteeing the obligations of GCS as charterers of the m/v Minerva under a charterparty dated 26 January 2010. The guarantee also bore the company seal.

- - - - (b) - -

Mr Jia signed an undated guarantee on behalf of GCL guaranteeing the obligations of GCS as charterers of the m/v Monemvasia under a time trip charterparty dated 1 March 2010. This guarantee did not bear the company seal.

- - - - (c) - -

On 21 April 2010 Mr Jia signed a guarantee on behalf of GCL guaranteeing the obligations of GCS or a nominee under a bareboat charter dated 12 April 2010. The guarantee also bore the company seal.

- - - - (d) - -

Mr Jia signed an undated guarantee on behalf of GCL guaranteeing the obligations of GCS as charterers under a charterparty with Danish owners dated 30 August 2010. The guarantee also bore the company seal.

- - - - (e) - -

The Monemvasia charter was extended by amendment to become a two year time charter, performance of which was further guaranteed by GCL by an agreement dated 10 October 2010. Mr Jia signed the guarantee agreement on behalf of GCL, this time with the company seal. The obligations under this agreement were further guaranteed by HNA.

- - - - (f) - -

On 22 October 2010 Mr Jia signed a guarantee on behalf of GCL guaranteeing the obligations of GCS as time charterers of the m/v Bulk Singapore under a charterparty dated 1 June 2010. The guarantee also bore the company seal.

- - - - - (5) - -

Five of these six guarantees bore the company seal. Either it was applied by Mr Jia, which suggests that he had access to the seal and therefore that he was on occasion given authority to sign guarantees on behalf of GCL; or the seal was applied by Mr Li with signature by Mr Jia either before or afterwards, which again would be indicative of Mr Jia having authority to sign such guarantees.

- - - - (6) - -

GCL did not disclose copies of any of these six guarantees signed by Mr Jia. Spar obtained them from public files in litigation in the USA. In fact GCL did not disclose any documents evidencing internal communications in respect of the conclusion of the Spar charters or the Guarantees, notwithstanding that Mr Li described a formal internal procedure requiring consideration by the compliance department, the financial department and the board of directors. GCL served a witness statement from the General Manager of its HR department explaining that its practice was such that it was left to retiring employees to select documents from their personal hard drives to pass on to those taking over, and the remainder would be deleted. Whilst not accepting Mr Phillips’ submission that such a document retention policy was incredible, nevertheless I find it hard to believe that no documentation survives from the formal compliance and authorisation procedures for those guarantees executed by Mr Jia in other cases, or that copies of those guarantees themselves, which would be important documents, were not preserved in copy. I am forced to the conclusion that such material has not been provided because those within GCL who are responsible for doing so did not wish the court to see it because it did not assist GCL’s case.

- - - - (7) - -

The report of what Mr Adam Tan of HNA/GCL said at the meeting in early July 2011 suggests that GCL were then treating the Guarantees as validly given on its behalf. If there had been any doubt over Mr Jia’s authority to execute them the previous year, Mr Tan could have been expected to raise it then.

- - - - (8) - -

When Spar sent letters to GCL on 16 September 2011 claiming on the Guarantees, GCL could have been expected to deny that the Guarantees were binding if that was thought to be the case. There was no such response. I reject GCL’s suggestion that the letters were not received, in the light of the fact that they were sent to what was still GCL’s current fax number; and in the light of the subsequent discussion between Mr Shao of RS Platou and Mr Luo Zhipeng, the general manager of GCL’s compliance department, on 22 September, followed by an email referring to the claim on the Guarantees and Mr Luo’s response.

- - - - (9) - -

Again, Mr Luo’s failure to suggest at this point that there was any doubt that GCL was bound by the Guarantees is telling. He was not some junior functionary but head of the compliance compartment and could be expected to have investigated whether the Guarantees had indeed been validly given on behalf of GCL before corresponding on the basis that they had.

- - - - (10) - -

Although Mr Jia has left GCL, GCL provided no information, still less evidence, to the effect that he would not assist by giving evidence, and if so explaining why not. His departure from GCL is not of itself an explanation, as is apparent from Mr Li’s willingness to provide a statement despite having left the company. Applying the principles identified in Wisniewsky v Central Manchester Healthy Authority [1998] PIQR 324, 340, it is legitimate to draw the inference, that GCL has not called him because it did not think that his evidence would assist its case.

- - - - (11) - -

GCL has disclosed no documents or other evidence identifying when it discovered the existence of the allegedly unauthorised Guarantees, of which it was aware no later than 16 September 2011, nor any documents containing or evidencing any adverse reaction, either internally or externally. Had Mr Jia been unauthorised, one would have expected disclosure of such documents and some witness evidence explaining GCL’s reaction upon its discovery and its investigation into what had happened.

- - - - - 81. - -

I have concluded that I can attach no weight to the statement of Mr Li that he did not authorise Mr Jia to sign the Guarantees and was unaware that he was doing so, for the following reasons:

- - - (1) - -

Mr Li was not called to give evidence and his evidence has not been tested.

- - - - (2) - -

Spar had given advance notice that it would ask the court to draw adverse inferences from the failure of Mr Li to give evidence. Although he has left GCL, it had access to him as a cooperative and potentially available witness who agreed to provide a statement. In advance of the trial GCL adduced no evidence as to why Mr Li was not to be called as a witness. The Court will only take into account evidence, not submission, which is tendered as an explanation for failure to call a witness if advance notice has been given that the court will be invited to draw an adverse inference: see Imam-Sadeque v Bluebay Asset Management [2012] EWHC 3511 (QB) at paragraph [10]. In his opening, Mr Coburn submitted on instructions (from what GCL had told his instructing solicitors, not as a result of any direct contact between the solicitors and Mr Li) that Mr Li was unwilling to attend. Mr Phillips said that he was prepared to treat this as being evidence. I therefore proceed on the basis that the explanation for his absence is not incapacity or unavailability but simply an unwillingness to give his evidence on oath and face cross examination. There was no information from GCL, still less evidence, as to why Mr Li was unwilling to give evidence. Mr Coburn speculated that it might have been the result of a reluctance to travel a long distance to be subjected to an ordeal in a hostile foreign environment. This is illegitimate speculation, but in any event would not explain an unwillingness to give evidence by video link. In the absence of further explanation, it is permissible to draw the conclusion that he was unwilling to give his evidence on oath and have the evidence tested by questioning because he did not think it would stand scrutiny.

- - - - (3) - -

This is an inference which gains strength from other aspects of his statement which are inconsistent with evidence in the case in important respects:

- - - (a) - -

Mr Li suggested that guarantees of the type in issue in this action would only be signed by him. This is inconsistent with the signature by Mr Jia of such guarantees on at least six separate occasions in 2010. This is not explained by Mr Li who makes no reference to the other guarantees signed by Mr Jia in his statement.

- - - - (b) - -

Mr Li asserted that only he, as the Legal Representative, could collect the company seal from the administration department of GCL, where it was kept, and apply it to contracts. This is inconsistent with the five guarantees executed by Mr Jia which bear the chop.

- - - - (c) - -

Mr Li provides no explanation for being ignorant of the Guarantees in the face of the apparent approval of the charters by the board of GCS, of which he was a member, in circumstances where the charters expressly referred to the fact that they were to be guaranteed by GCL.

- - - - - (4) - -

Mr Li’s statement leaves many questions unanswered. If the internal procedures required submission to the compliance department, the financial department, the board and then him, why did none of these take place? Or if authorisation was declined somewhere in the chain, when, and by whom, and why? And if so why were Spar not so informed? Or if the authorisation process was never initiated, how is that to be reconciled with the correspondence suggesting that it was, and the express requirement in the fixture that there should be guarantees? And again, if so, why was Spar not informed? What explanation could there be for Mr Jia executing the Guarantees when he knew he was not authorised to do so? He could hardly have expected the fact that he had done so to be secret from others. GCL’s case involves the improbable assumption that Mr Jia was on an unexplained frolic of his own in signing these Guarantees, of which no one else within GCL or HNA was aware for several years.

- - - - - 82. - -

In the light of these considerations I conclude, without any real hesitation, that Mr Li expressly authorised Mr Jia to sign the Guarantees; alternatively, and at the very least, that Mr Li knew at the time that Mr Jia was going to sign them so as to purport to bind GCL and did nothing to repudiate his authority or ability to bind GCL by doing so.

- - - - 83. - -

I also conclude that in signing the Guarantees, Mr Jia was conducting duty related activities within the meaning of the Chinese law principle I have found to be established.

- - - - 84. - -

GCL is therefore bound by the Guarantees.

- - - - 85. - -

This conclusion renders it unnecessary to address issues of ratification and ostensible authority, but in case I be wrong on actual authority I will state my conclusions briefly.

- - - -

Ostensible authority

- - - - - 86. - -

This issue is governed by English law as the putative proper law of the contract. The principles were not in dispute, and are summarised in Bowstead & Reynolds on Agency 20th edn at Article 72. Spar submitted that GCL held Mr Jia out as the person authorised to execute the Guarantees by putting him in a position of sufficient seniority to sign and deliver them purporting to act on behalf of GCL, and giving him access to the company seal. GCL contended that Spar had not relied on any relevant representation by GCL: Spar had drafted the Guarantees and intended that they should be signed by the Chairman. Spar’s mistake was in thinking that Mr Jia was the Chairman. GCL did nothing to hold Mr Jia out as the Chairman.

- - - - 87. - -

Although Mr Ellefsen confirmed in his statement and his oral evidence that he assumed that Mr Jia was the Chairman, it would be inaccurate to treat his evidence as being that that was the complete extent of his reliance on the provision of the documents by GCL. It was clear from his evidence as a whole that he was treating the return of the signed Guarantees by GCL as a representation that the signatory was authorised to execute them on behalf of the company. That is sufficient to establish reliance on a holding out by GCL that Mr Jia was so authorised. Had I concluded there was no actual authority, I would have held GCL bound by reason of ostensible authority.

- - - -

Ratification

- - - - - 88. - -

In Sea Emerald SA v Prominvestbank v Joint Stockpoint Commercial Industrial and Investment Bank [2008] 1 Lloyd’s Rep 96 Andrew Smith J summarised the relevant principles at paragraphs [102] to [103] in the following terms:

- - - - “102. - -

The principles governing ratification by a purported principal of an act done in his name were considered by Waller J in Suncorp Insurance and Finance v Milano Assicurazioni SPA [1995] 2 Lloyd’s Rep 225 especially at page 234 and by Moore-Bick J in Yona International Limited v La Reunion Francaise SA [1996] 2 Lloyd’s Rep 84 especially at pages 103 and 106. Ratification may be implied as well as express, and there is no requirement that it be communicated to either the agent or the person with whom the agent entered into the contract: it operates as a unilateral manifestation of will. Mere acquiescence or inactivity may be sufficient to constitute ratification. However, it involves a conscious decision to adopt an unauthorised act, and in order for there to be ratification:

- - - - (i) - -

The act of ratification must be that of the principal or of someone competent at the time of ratification to make the contract in question or to do the relevant act for the principal.

- - - - (ii) - -

The person ratifying the agent’s conduct must know of all the material circumstances, unless he evinces an intention to ratify the contractual or other act regardless of them.

- - - - (iii) - -

In a case of ratification through silence and inactivity, it must be such as to manifest unequivocally an intention to adopt the act in question.

- - - - 103. - -

In the Yona International case, Moore-Bick J said this (at page 106), which to my mind has some application to this case:

- - - - -

‘The essence of ratification is a decision by the principal to adopt the unauthorized act as his own. It does not therefore depend on communication with or representation to the third party and is thus in principle distinct from estoppel, but since the intention to ratify must be manifested in some way it will in practice often be communicated to and relied upon by the other party to the transaction. Ratification can no doubt be inferred without difficulty from silence or inactivity in cases where the principal, by failing to disown the transaction, allows a state of affairs to come about which is inconsistent with treating the transaction as unauthorized. That is probably no more than a form of ratification by conduct. Where there is nothing of that kind, however, the position is more difficult since silence or inaction may simply reflect an unwillingness or inability on the part of the principal to commit himself. For that reason it will not usually be sufficient to evidence ratification, nor will it amount to an unequivocal representation sufficient to give rise to an estoppel.’”

- - - - - - - - 89. - -

On 31 December 2010, Mr Li ceased to be employed by GCL and by board resolutions of the same date Mr Jia was appointed Chairman and Legal Representative of GCL. He remained in that position until 10 September 2012. Throughout that period he had authority to ratify the Guarantees which he had signed as Chairman of the Executive Board in March 2010 and of which he was aware.

- - - - 90. - -

The only reasonable conclusion from the evidence is that during this period, Mr Jia actively and unequivocally adopted as Chairman and Legal Representative the Guarantees which he had signed as Chairman of the Executive Board. That is sufficient manifestation to ratify the Guarantees if, contrary to my earlier findings, they were not authorised when entered into. Such conduct is to be inferred from the absence of any internal documentation, or any external communication, which suggests that Mr Jia ever expressed any doubt about the validity of the Guarantees at any time before his departure from GCL in September 2012. His conduct internally must have amounted to positively accepting their validity because it is unrealistic to suppose that the Guarantees were never known about or discussed by senior management within GCL and HNA. The Guarantees must have come to the attention of senior management within GCL when Spar called on them on 16 September 2011 at the latest. It seems probable that they would have done so earlier, as is suggested by Mr Tan’s comments at the meeting at the beginning of August 2011, not least because they were referred to on the face of the charterparties which must have been under discussion when GCL’s cash support of GCS was under consideration. This conclusion is reinforced by a Lloyd’s List report relied on by GCL, which reports that in April 2012 a number of GCL executives were “punished” for payment disputes affecting the company; it is to be inferred that amongst these were Spar’s claims on the Guarantees. Mr Jia was said to have “recorded a serious demerit” but remained in his post as Chairman for a further 8 months.

- - - -

SAFE

- - - - - 91. - -

GCL’s argument in relation to SAFE was that although the Guarantees are expressly governed by English law, Chinese law is mandatorily applicable because of the provisions of Article 3.3 of the Rome Convention. Mr Coburn acknowledged a difficulty in articulating any basis on which such provisions could apply to a charter with a Norwegian shipowner requiring payment of hire at a Norwegian bank account. A similar argument was advanced in The Vine [2011] 1 Lloyds Rep 301 and rejected by Teare J for reasons given at paragraphs [172] to [179]. I reject the argument in this case for similar reasons. In any event, even were SAFE provisions relevant, they would not assist GCL because they do not render a guarantee unenforceable for non registration where the guarantor is at fault, and in this case the fault for not registering the Guarantees lay solely with GCL.

- - - - Issue 2: Is payment of hire a condition of the charterparties? - - -

The doctrine of precedent

- - - - - 92. - -

Is payment of hire in a time charter a condition? This question was answered in the negative by the decision of Brandon J, as he then was, in Tenax Steamship Co Ltd v Reinante Transoceanica Navegacion SA (The Brimnes) [1973] 1 WLR 386. More recently Flaux J reached the opposite conclusion in Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra) [2013] 2 Lloyd's Rep 69 after a careful review of the authorities, including a number decided at the highest level since The Brimnes.

- - - - 93. - -

Mr Phillips urged me to follow the decision of Flaux J in The Astra on the basis of a principle that where a judge of the High Court is confronted with two conflicting High Court authorities, and where the earlier decision has been fully considered but not followed in the second decision, the matter should be treated as settled by the second decision at that level. In Minister of Pensions v Higham [1948] 2 KB 153, p. 155, Denning J stated that he would “follow the general rule that where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decision is to be preferred, if it is reached after full consideration of the earlier decision.” In Colchester Estates (Cardiff) v Carlton Industries [1986] Ch 80 Nourse J. cited this passage and went on to say at p. 85 D-H:

- - - - -

"That unqualified statement of a general rule comes from a source to which the greatest possible respect is due. It is fortuitous that my own instinct should have coincided with it. However diffident I might have been in relying on instinct alone, the coincidence encourages me to suggest a reason for the rule. It is that it is desirable that the law, at whatever level it is declared, should generally be certain. If a decision of this court, reached after full consideration of an earlier one which went the other way, is normally to be open to review on a third occasion when the same point arises for decision at the same level, there will be no end of it. Why not in a fourth, fifth or sixth case as well? Mr. Barnes had to face that prospect with equanimity or, perhaps to be fairer to him, with resignation. I decline to join him, especially in times when the cost of litigation and the pressure of work on the courts are so great. There must come a time when a point is normally to be treated as having been settled at first instance. I think that that should be when the earlier decision has been fully considered, but not followed, in a later one. Consistently with the modern approach of the judges of this court to an earlier decision of one of their number (see, e.g., Police Authority for Huddersfield v. Watson [1947] K.B. 842, 848, per Lord Goddard C.J.), I would make an exception only in the case, which must be rare, where the third judge is convinced that the second was wrong in not following the first. An obvious example is where some binding or persuasive authority has not been cited in either of the first two cases. If that is the rule then, unless the party interested seriously intends to submit that it falls within the exception, the hearing at first instance in the third case will, so far as the point in question is concerned, be a formality, with any argument upon it reserved to the Court of Appeal."

- - - - - - - - 94. - -

This approach was endorsed in relation to conflicting Court of Appeal decisions by Lord Neuberger MR in Patel v Secretary of State for the Home Department [2013] 1 WLR 63 at paragraph [59].

- - - - 95. - -

Although the point is ultimately one of construction of clause 11 of these charters, it is a question of general application and importance to the shipping community. Commentary following the decision in The Astra suggests that Flaux J’s decision has not been universally welcomed or treated as settling the position. I have heard argument on the point and would regard it as intellectually pusillanimous not to form a concluded view. Having done so, I have the misfortune to differ from the conclusion reached by Flaux J. In those circumstances I feel bound to decide this case in accordance with what I regard to be the law and to explain my reasons for differing from Flaux J on this issue.

- - - -

Terminology

- - - - - 96. - -

It is convenient to start with a number of uncontroversial propositions, which are supported by authorities too numerous to mention. Helpful exposition is to be found in the judgments of Devlin J in Universal Carriers v Citati [1957] 2 QB 401 at pp. 436-8, Diplock LJ in Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 Q.B. 26 at pp. 69-70, Lord Diplock in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at pp. 848-850, and Mustill LJ in Lombard Plc v Butterworth [1987] QB 527 at pp. 535-536. I set them out because although the principles are well established, there is sometimes room for ambiguity in the terminology used to express them.

- - - (1) - -

There are essentially three categories of conduct by one party to a contract which may entitle the innocent party to treat the contract as at an end, namely (a) a total or partial failure to perform obligations which have fallen due, (b) conduct which evinces an intention not to perform future obligations when they fall due, and (c) impossibility to perform future obligations when they fall due created by the defaulting party’s own act. The first is actual breach. The second and third, commonly termed renunciation and self induced impossibility respectively, are the two forms of anticipatory breach.

- - - - (2) - -

In the absence of any relevant contractual or statutory provision, the innocent party’s right to treat the contract as terminated will depend upon whether the term breached is to be categorised as a condition, a warranty or an innominate term. Any breach of a condition will entitle the innocent party to terminate the contract. Only a sufficiently serious breach of an innominate term will do so, often expressed as one which goes to the root of the contract or one which deprives the innocent party of substantially the whole benefit of the contract. The expression repudiatory breach is sometimes used to cover only a breach of an innominate term, in distinction to a breach of condition; sometimes it is used to cover both. I shall use it to cover both. It is also commonly used to describe the form of anticipatory breach directed to performance of future obligations, which I prefer to call renunciation. Elision between use of the terms repudiation and renunciation is common in the cases, not least because an actual breach may itself evince an intention not to perform in the future and therefore be renunciatory. But use of the word repudiatory to refer to conduct which is relevant not as actual breach in the past but only insofar as it casts light on future performance may lead to confusion of thought, and I prefer to use it only to describe a category of actual breach.

- - - - (3) - -

Where there is a repudiatory breach or renunciation, the innocent party is entitled to elect to terminate the contract. If he does so, the consequence is that (a) each party is relieved from its obligations to render any further performance under the contract; and (b) the innocent party is entitled to damages for loss caused by the breach, which includes loss flowing from the termination. For the purpose of assessing damages, it is the defaulting party’s repudiatory breach or renunciation which is regarded as the cause of the termination, not the innocent party’s election to terminate.

- - - - (4) - -

Other language has been used to describe a “condition”, used in this sense as a term any breach of which is sufficient to give rise to a right to terminate. Where the obligation in question falls to be performed by a certain time, the question has often been formulated as "whether time is of the essence”. Other formulations include whether the term is an essential term or a fundamental term, although Lord Diplock who has played a large part in the development of the jurisprudence in this area, uses the expression fundamental breach to connote a repudiatory breach of an innominate term in contradistinction to a breach of condition.

- - - - (5) - -

It is possible by express provision in the contract to make a term a condition, even if it would not be so in the absence of such a provision. So a stipulation that time is of the essence, in relation to a particular contractual term, denotes that timely performance is a condition of the contract. The consequence is that delay in performance is treated as repudiatory, without regard to the gravity of the breach, such that the injured party may elect to terminate and recover damages in respect of the defaulting party’s outstanding obligations.

- - - - - 97. - -

A contractual term may, however, provide for termination in the case of breach without the parties intending the consequences to be the same as would arise at common law if the term breached were categorised as a condition. Parties may agree that in the event of breach the innocent party should have the right to terminate the contract, so as to put an end to future performance obligations under the contract, but without intending that the defaulting party should be liable for any consequences of the termination. Such provisions are concerned solely to provide the innocent party with an option to put an end to his performance obligations, but not to confer a right to claim damages flowing from the termination itself. In such cases it is the innocent party’s election to exercise his option to terminate which is treated as the cause of the termination, and the cause of whatever loss flows from it, not the breach which triggers the innocent party’s right to cancel. I shall use the expression “option to cancel” to connote such a term, whilst recognising that contractual language couched in terms of cancellation may be equally consistent with an intention to treat the term breached as a condition with the full damages consequences which flow from that analysis.

- - - - 98. - -

Such an option to cancel leaves unaffected the innocent party’s rights to claim damages, which remain governed by the common law principles set out above. If there has been a repudiatory breach or renunciation, the right to damages is preserved; if there has been no repudiatory breach or renunciation, the option to cancel does not confer a right to damages, in the absence of clear language to the contrary, but merely confers a right to put an end to future performance obligations.

- - - - 99. - -

The applicability of these principles to options to cancel is apparent from the Court of Appeal decision in Financings Ltd v Baldock [1963] 2 QB 104. In that case a contract for hire purchase of a truck provided for payment of a deposit and monthly instalments over a period of two years. The hirer failed to pay the first two instalments. The owner terminated the agreement and retook possession of the truck pursuant to clauses 8 and 9 of the contract which provided that if the hirer failed to pay any instalment within 10 days after it had become due “the owner may by written notice forthwith and for all purposes terminate the hiring” and “without notice retake possession” of the truck. Having retaken possession and sold the truck at a loss, the owner claimed damages representing the difference between the two years’ hire due under the contract and the resale price. It was held that the owner was confined to a claim for the two instalments which had fallen due prior to the termination. The owner argued, among other things, that the effect of the clause giving the right to terminate was to elevate the term providing for punctual payment to the status of a condition (see p.108). This argument was rejected. At pp. 110 – 111, Lord Denning said:

- - - - -

“It seems to me that when an agreement of hiring is terminated by virtue of a power contained in it, and the owner retakes the vehicle, he can recover damages for any breach up to the date of termination but not for any breach thereafter, for the simple reason that there are no breaches thereafter. I see no difference in this respect between the letting of a vehicle on hire and the letting of land on a lease. If a lessor, under a proviso for re-entry, re-enters on the ground of non-payment of rent or of disrepair, he gets the arrears of rent up to the date of re-entry and damages for want of repair at that date, but he does not get damages for loss of rent or for breaches of repair thereafter.”

- - - - - - - - 100. - -

At pages 111-112 Lord Denning endorsed the view expressed by Salter J in Elsey & Co Ltd v Hyde (1926), an unreported case quoted by Jenkins LJ in Cooden Engineering Co v Stanford [1953] 1 QB 86, 102, that in the absence of repudiatory breach or renunciation, the owner’s loss of bargain following exercise of a contractual right of termination was not the result of the hirer’s breach in making late payments, but of the owner’s election to exercise his right to determine the contract. Lord Denning went on to consider Yeoman Credit Ltd v Waragowski [1961] 1 WLR 1124, Overstone Ltd v Shipway [1962] 1 WLR 117 and Bridge v Campbell Discount Co [1962] AC 600, identifying that in each of those cases there had been conduct renouncing performance of future obligations which would give rise to a right to terminate independently of the contractual right of termination. Using the language of repudiation to include renunciation of future obligations, he said of these authorities at pp. 112-113:

- - - - -

“Once the hirer repudiated his liability for future rentals, the owners were entitled to treat the repudiation as itself a breach going to the root of the contract: and, on accepting it as such, they were entitled to regard the hiring as at an end and retake the vehicle. The repudiation being itself a breach which took place before the termination, it is within the class of breaches for which the owners can recover damages according to the principle I have already stated. But if there is no repudiation, and simply, as here, a failure to pay one or two instalments (the failure not going to the root of the contract and only giving a right to terminate by virtue of an express stipulation in the contract), the owners can only recover the instalments in arrear, with interest, and nothing else; for there was no other breach in existence at the termination of the hiring.”

- - - - - - - - 101. - -

Diplock LJ observed that the time of payment was not “of the essence of the contract” (p. 118) and that clause 8 entitled the owner to terminate upon the occurrence of a number of events, not all of which were breaches of contract by the hirer. He stated that the hirer had not committed a breach which went to the root of the contract in failing to pay two instalments, or thereby evinced an intention no longer to be bound by the contract, so that in the absence of a contractual provision the owner would have no right to terminate and no right to damages beyond the instalments in arrears (p.120). He went on to say pp.120-121:

- - - - -

“….. in the absence of express provision to the contrary, the non-payment of two instalments would not be an event which relieved the owners from their undertaking to do what they had agreed to do but had not yet done.

- - - - -

As I ventured to point out in Hongkong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd, parties to a contract may incorporate in it provisions which expressly define the events, whether or not they amount to breaches of contract, which are to have this result. But such a provision of itself may do no more than define an event which of itself, or at the option of one or other of the parties, brings the contract to an end and thus relieves both parties from their undertakings further to perform their obligations thereunder. Whether or not it does more than this and confers any other rights or remedies on either party on termination of the contract, depends on the true construction of the relevant provision.”

- - - - - - - - 102. - -

After consideration of the authorities he summarised their effect at p. 123 as being that

- - - - -

“…where one party has done something which the law…regards as a wrongful repudiation of the contract and the other party has thereupon determined the contract, whether under an express power contained in the contract or in the exercise of his right to do so under the common law, he is entitled to damages for non-performance of the contract during the period that it has still to run; but … if that party has not done something which the law regards as a wrongful repudiation of the contract, the other party, although he may be entitled under an express power to determine the contract, is not entitled to damages for non-performance of the contract during the period for which it would have continued to run but for such determination.”

- - - - - - - - 103. - -

Upjohn LJ concurred in the result, making clear that the critical factor (“the essence of the case”: p.114) was that the hirer had not repudiated the contract by failing to pay two instalments.

- - - - 104. - -

Financings v Baldock does not immediately provide the answer to the question whether non payment of hire in a time charter is a condition. There are important differences between a time charter and a hire purchase agreement. Moreover the contract in that case provided for termination upon events which were not confined to breaches; and there was a clause providing for interest on late payment which Diplock LJ treated as significant in indicating that time of payment was not intended to be of the essence. These are significant distinctions. The case does, however, illustrate that the mere fact that a contractual right of termination is conferred for any breach of a term, however trivial, does not answer the question whether the term is a condition.

- - - - 105. - -

The critical question in this case is whether the contractual right to terminate by withdrawal of the vessel for non payment of hire conferred by clause 11 is to be construed as indicating that the parties intended that payment of hire was a condition, or whether it is to be construed simply as an option to cancel in circumstances where payment of hire is an innominate term and a breach will not give rise to a right to damages in the absence of a repudiatory breach or renunciation.

- - - - 106. - -

Although the question is ultimately one of construction of clause 11 of these charters, it is convenient first to review the authorities on time charter withdrawal clauses, then those dealing with categorisation of terms and time being of the essence in mercantile contracts, before considering the language of the clause and my analysis and conclusions.

- - - -

The time charter withdrawal authorities.

- - - - - 107. - -

The earliest case considered by Flaux J in The Astra is Italian State Railways v Mavrogordatos (The Antonios Mavrogordatos) [1919] 2 KB 305. The wording of the withdrawal clause was essentially the same as that in the 1946 New York Produce Exchange form. The monthly advance hire payment fell due on 10 January, the owners withdrew the vessel on 11 January and the owners claimed hire up to completion of discharge on 23 January. I respectfully agree with the analysis of the case by Flaux J at paragraphs [45] to [52] of The Astra, and his conclusion that it is no part of the ratio of the decision that the provision for payment of hire was not a condition, subject to one observation. Amongst other things the owners argued that the hire was due as damages for non payment on 10 January, prior to termination. This argument was addressed and dismissed by Duke LJ at pp. 313-314 in the following terms:

- - - - -

“Then it was said that the owner, if not entitled to freight under that clause, is entitled to damages to an equal amount for the charterers’ breach of contract, the breach being the failure of the charterers to pay punctually the hire due on January 10, that this breach occurred while the ship was beyond the reach of the owner so that he could not resume effective control of her, and that therefore he is entitled as damages to an amount equal to hire for the period from January 11 to January 23 when he got possession of his ship at Barry. That argument is fallacious. The non-payment of the hire was not the cause of loss, if any, incurred by the owner through not getting possession of his ship till January 23. The real cause was his own act in withdrawing his ship of his own volition on January 11 when he was well able to make an advantageous choice between leaving control to the charterers and assuming it himself. Having done that act, presumably with a just view of his own interest, he cannot rely upon it as giving him a right to damages.”

- - - - - - - - 108. - -

This reasoning supports an analysis of the withdrawal clause as an option to cancel: it is not to be treated as conferring rights to damages flowing from the termination because those are caused by the exercise of the option to terminate, not the failure to pay hire which gave rise to the right to terminate.

- - - - 109. - -

Next to be considered is the decision of Greer J in Leslie Shipping Co v Welstead [1921] 3 KB 420. In that case owners were claiming damages for loss of bargain in a falling market following exercise of the right to withdraw for non payment of hire. The charterparty was on the Baltime form providing “in default of such payment the owners shall have the faculty of withdrawing [the vessel] from the service of the charterers”. The charterers argued that the damages were caused by owners’ decision to withdraw rather than the non payment of hire. Owners argued that the damages were the natural and probable consequence of the non payment of hire. In rejecting charterers’ argument, Greer J said at pp. 425-426:

- - - - -

“On the whole my view is that the damages arise as the natural and probable consequence of the defendant’s breach of contract in failing to pay the two instalments of hire which were due at the time of the withdrawal.”

- - - - - - - - 110. - -

In The Astra, Flaux J described the reasoning as broadly helpful to the argument that payment of hire was a condition, although providing a somewhat uncertain foundation upon which to base any firm conclusion in the light of Greer J’s view that the charterers were in repudiatory breach. For my part I do not think that the case provides even this limited assistance. Greer J was not concerned to decide whether any breach of the hire obligation gave rise to a right to terminate, and his determination that the non payment was repudiatory in that case is at most neutral on whether the term was a condition. The decision was that where non payment of hire is repudiatory, the exercise of the contractual right to withdraw does not cut down the entitlement to loss of bargain damages which exists independently of the clause. As such, it does not advance the current debate.

- - - - 111. - -

Tankexpress A/S v Compagnie Financiere Belge des Petroles S/A (The Petrofina) [1949] AC 76 was the first in a number of cases which emphasised a strict approach to the charterers’ obligation to pay hire in the context of construing withdrawal clauses. The clause in that case was on the Baltime form providing for payment of cash in London, but the practice of the owners had been to accept payment by cheque. Hire fell due on 27 September 1939 and a cheque was posted from Belgium on 25 September, but due to the outbreak of the war it did not arrive until October. In the meantime the owners withdrew the vessel on 30 September. The House of Lords held that the owners were not entitled to withdraw because the charterers had performed the hire payment obligation in accordance with accepted practice by sending a cheque by post. The potential relevance of the decision for present purposes lies in a passage in the speech of Lord Wright at pp. 94-95:

- - - - -

“Default in payment, that is, on the due date is not in my opinion excused by accident or inadvertence. The duty to pay is unqualified so far as the express terms of the charterparty go. I think this is the true construction of the terms of the contract, and it is confirmed by the cases cited in argument. A dictum or decision of Bigham J. in Nova Scotia Steel Co., Ld. v. Sutherland Steam Shipping Co., Ld. (1899) 5 Com. Cas. 106, has been relied upon as an authority that a certain latitude was permissible so that payment made two days after the due date did not constitute a default in payment. But I cannot agree that so drastic a departure from the specific words of the charter can be supported. In that case the clause provided for regular and punctual payment: these adjectives however add nothing to the stringency of the simple and unqualified language in the charter before this House. I think that so much of Bigham J’s judgment as conceded a latitude as to the date of payment is erroneous in law and should be overruled. The importance of this advance payment to be made by the charterers, is that it is the substance of the consideration given to the shipowner for the use and service of the ship and crew which the shipowner agrees to give. He is entitled to have the periodical payment as stipulated in advance of his performance so long as the charterparty continues. Hence the stringency of his right to cancel.”

- - - - - - - - 112. - -

The other speeches each expressed the same disapproval of Bigham J’s approach in the Nova Scotia case that charterers were allowed a certain latitude under the clause: Lord Porter at p. 91, Lord Uthwatt at p. 99, Lord Du Parcq at p.102, and Lord Morton at p. 107.

- - - - 113. - -

In The Astra at paragraph [58], Flaux J said of the passage in the speech of Lord Wright:

- - - - -

“The significance of that passage, as I see it, is that although it does not state in terms that the provision for payment of hire is a condition, Lord Wright’s reasoning is clearly predicated upon it being an essential term of the contract, which, as other cases demonstrate, is synonymous with the provision being a condition.”

- - - - - - - - 114. - -

I cannot attach the same significance to the passage. What is said here, and in passages in the later authorities identifying the importance to owners of full and punctual advance payment of hire, is that they afford good reasons for construing a clause conferring the right to withdraw as having the stringency which its clear language suggests. They explain why there should be no inclination to construe the words in the withdrawal clause which trigger the right to withdraw with any latitude, or otherwise in accordance with their plain terms. If the owner is not paid fully and on time in advance, effect should be given to the right for which he has bargained, in unqualified terms, no longer to provide the services of the master and crew to the defaulting charterer, and to be free to employ his vessel elsewhere. But this says little, if anything, about whether a trivial breach should additionally carry with it a liability on the charterers to pay damages in respect of the unexpired term of the charter. If full and punctual advance payment of hire is the lifeblood of the owner, on which he is entitled to insist, a withdrawal clause which amounts to an option to cancel adequately protects this commercial interest: once exercised the owner is free to employ his vessel elsewhere, trusting to the performance of a different charterer to pay hire fully and punctually in advance. I see nothing in the owner’s interest which is not adequately protected by an option to cancel. This interest does not require the term to be construed as a condition, and nothing in the passage from Lord Wright’s speech suggests such an analysis. There is no mention of the term being one making time of the essence, or being an essential term. The passage, and those in subsequent authorities which emphasise the importance to owners of full and punctual advance payment of hire, are to my mind equally consistent with a withdrawal clause being an option to cancel, which is to be construed as having the stringency which its unqualified language suggests whilst not treating the non-payment as conferring any additional rights or obligations which would not exist apart from the withdrawal clause.

- - - - 115. - -

Construction of the withdrawal clause in the Baltime form again fell to be considered in Empresa Cubana de Fletes v Lagonisi Shipping Co Ltd (The Georgios C) [1971] 1 QB 488. In that case the clause provided for hire to be payable to the owners’ London bank and the accepted method of payment was by tender of a banker’s payment order from the charterers’ correspondent bank. The relevant instalment fell due by midnight on a Saturday. As a result of charterer’s mistaken belief that because banks were shut on a Saturday, payment on the following Monday would be timeous, the banker’s payment order was not tendered until the Monday morning. The owner’s bank, in accordance with owners’ instructions, refused to accept payment on the Monday and owners then gave notice of withdrawal that evening. The parties first came to the Commercial Court on Wednesday of the following week, the trial with oral evidence was concluded on the Friday, with Donaldson J giving judgment after the weekend only a fortnight after the events in dispute. He observed that “The Commercial Court exists to serve the national and international community. It has no other purpose. If the need is for a speedy decision, this is the service which can and will be provided.” That is as true now as it was then.

- - - - 116. - -

The Baltime withdrawal clause provided that “In default of payment the owners to have the right of withdrawing the vessel from the service of the charterers….without any formality whatsoever and without prejudice to any claim the owners may otherwise have on the charterers under the charter …” Since the market had risen by some 30% and the only question in issue was whether owners had the right to withdraw, not any damages claim, it did not matter in that case whether the withdrawal was the exercise of a contractual or common law right. Nevertheless Donaldson J and the Court of Appeal were addressing an argument by Mr Hobhouse QC, as he then was, that the effect of the withdrawal clause was to treat the payment of hire as a condition. The argument at first instance is recorded as being that “the charterparty imposes an obligation on the charterers to pay hire in advance, that time is of the essence, and that breach of this obligation gives rise to a contractual right to end the charterparty” (p. 494C). In the Court of Appeal, where the argument is reported more fully, it is clear that Mr Hobhouse was arguing that non payment of hire was a breach of condition at common law given the terms of the clause, and that The Petrofina was authority on the same clause to that effect: see p. 498C-F, 501F-G, and the responsive argument of Mr Staughton QC, as he then was, for the charterers recorded at p. 500E-H.

- - - - 117. - -

Donaldson J said at p. 494E-H:

- - - - -

“It is important to remember that in relation to the payment of hire under a time charterparty, time is of the essence of the contract only in the sense that there is a breach of contract if payment is a moment late. It is not of the essence of the contract in the sense that late payment goes to the root of the contract and is a repudiating breach giving rise to a common law right in the owners to treat the contract as at an end. The right to withdraw the vessel and thus bring the charterparty to an end is contractual and the situations in which this right is exercisable depend upon the true construction of the contract. In the present case the words are ‘In default of payment’. Does this mean ‘If there has been default in payment’ or does it mean ‘Whilst there is default in payment’? If it means the former, a shipowner can take his time considering whether or not to withdraw the vessel and there is no action which the charterer can take to retrieve the position, although a stage will eventually be reached when, in the absence of a withdrawal of the vessel, it can be said that the owner has waived his rights. If it means the latter, the owner can still withdraw the vessel if he acts promptly, but the charterer can retrieve the situation if he pays or tenders the hire before the owner acts.

- - - - -

“Both the wording of the clause and the drastic nature of the right conferred on the owners lead me to the conclusion that the right of withdrawal is intended as a spur to timeous payment, which subsists only so long as there is an absence of payment rather than a punishment for late payment. Once payment has been made, whether late or in time, there is no further need for such encouragement. The words are ‘In default of’ which I construe as ‘in the absence of’.”

- - - - - - - - 118. - -

In the Court of Appeal Lord Denning MR said at p.504D-G:

- - - - -

“The effect of a stipulation as to time always depends on the true construction of the contract. A default in payment does not automatically give the other a right to determine it. Usually it does not do so. It only does so if there is an express provision giving the right to determine, or if the non-payment is such as to amount to a repudiation of the contract. That is shown by Martindale v. Smith, (1841) 1 Q.B. 389; and by the well-known judgment of Lord Blackburn in Mersey Steel and Iron Company (Ltd.) v. Naylor, Benzon & Co., (1884) 9 App. Cas. 434, at p. 444. In the present case the non-payment was clearly not such as to amount to repudiation. It was obviously a mistake. The charterers thought that as the banks were closed on Saturday and Sunday, Monday would do. They were wrong in so thinking. But they were not repudiating the contract. Then does the clause itself give the shipowners the right to withdraw? I think it does, as the Tankexpress case shows, provided always that they exercise the right before payment is made or tendered. I think in this clause the words “in default of payment” mean “in default of payment and so long as default continues”. It means that the owners have the option — so long as the charterers are in default — to withdraw the vessel. But, once the charterers remedy their default, by paying the instalment or tendering it, the owners have no right to withdraw.”

- - - - - - - - 119. - -

Phillimore and Cairns LJJ delivered concurring judgments in terms which I do not regard as making what Lord Denning said in the passage quoted as part of the ratio of the decision of the Court. Both simply held that the right to withdraw which had arisen did not subsist after tender of payment. Phillimore LJ’s essential reasoning (p. 506E-F) was that charterers’ rectification of default by tender of payment prior to withdrawal prevented such withdrawal being valid on the authority of the Privy Council case of Langfond (Owners) v Canadian Forwarding and Export Co (1907) 96 LT 559. Cairns LJ held that “for the reasons that my Lords have given, I agree that as this payment was tendered before the withdrawal, the right to withdraw was lost” (p. 507D).

- - - - 120. - -

I come to The Brimnes, which was concerned with the NYPE 1946 form. The charterparty was on the NYPE 1946 form and clause 5 provided for hire to be paid monthly in advance in cash to Morgan Guarantee Trust (“MGT”) in New York for the credit of the owners’ account and that “failing the punctual and regular payment of the hire . . . or any breach of this charterparty, the owners shall be at liberty to withdraw the vessel . . . without prejudice to any claim they . . . may have on the charterers”. The dispute which arose concerned the alleged late payment of the monthly instalment of hire payable on 1 April 1970. The charterers’ bank, Hambros, usually used a method of transferring funds which involved their sending a telex to MGT, with whom they had an account, asking them to pay the hire to the owners’ account, specifying the value date. On receipt of the telex MGT would carry out a process resulting in Hambros’ account being debited and the owners’ account credited with the relevant dollar amount. Debit and credit advices would be sent to Hambros and the owners’ London agents respectively. At the trial before Brandon J it was in dispute between the owners and the charterers when the time of payment was under this method of transfer. The charterers contended it was the time of receipt on MGT’s telex machine of Hambros’ order to pay or, if the telex came before the value date, when MGT first opened for business on the value date. The owners contended that the time of payment was later, when MGT took the decision to debit Hambros’ account and credit the owners’ account. Even on the charterers’ case the 1 April 1970 payment was paid late. The owners withdrew the vessel.

- - - - 121. - -

A number of issues arose before Brandon J, the first of which was whether the owners had withdrawn the vessel before or after the admittedly late payment of hire. This involved complex and contested issues of fact and law which were the subject of extensive evidence on both sides at trial. Brandon J concluded that the time of payment was, as the owners contended, when MGT made the decision to debit Hambros’ account and credit the owners’ account (page 402C) and that the notice of withdrawal was received by the charterers before payment was made (page 406B to D). He then said at page 406E: “In dealing with the rights of the parties I shall proceed primarily on the basis that the withdrawal was before the payment. I shall, however, consider also what those rights would be if I am wrong about that and either the payment was before the withdrawal or the evidence leaves in doubt which of the two events preceded the other”.

- - - - 122. - -

Owners relied on three alternative grounds justifying termination, one being that the failure to pay hire was a breach of condition (an “essential term” in the language used by Brandon J); the second being, alternatively, that the non payment was a repudiatory breach of an innominate term; and the third being that there was a contractual right of termination under the terms of the withdrawal clause. Charterers relied on the The Georgios C in respect of the first and third arguments, contending that it was authority that the term was not a condition, and that the clause was to be construed as applicable only for so long as hire was not paid or tendered.

- - - - 123. - -

On the condition point, the relevant passage in Brandon J’s judgment (pp. 406G-408C) records the starting point as a concession by Mr Evans QC, as he then was, as counsel for the owners, that The Georgios C was binding, and addresses rival arguments as to whether that case governed the question or was distinguishable. Brandon J cited the passages from Donaldson J and Lord Denning set out above and rejected the arguments of Mr Evans for distinguishing the case in these terms at pp. 407H-408C:

- - - - -

“It was argued by Mr Evans that there were two features of clause 5 of the charterparty in this case, not present in clause 6 of the charterparty in [The Georgios C. ie the Baltime form] which showed that the parties intended the obligation to pay hire by a certain date to be of the essence of the contract. These were, first, the use in relation to the word ‘payment’ of the epithets ‘punctual’ and ‘regular’, and, secondly, the presence of the words ‘or any breach of this charterparty’. As regards the epithets ‘punctual’ and ‘regular’ he said that these emphasised the importance of the obligation, and he relied, in support of this proposition, on Maclaine v Gatty [1921] 1 AC 376 and particularly on the observations of Viscount Finlay, at p 389. As regards the words ‘or any breach of this charterparty’ he said that it was necessary to imply the words ‘in the event of’ between the words ‘or’ and ‘any’, and that what was then meant was that, in the event of a breach of any essential term of the charterparty, other than failure to pay hire punctually, the owners should have the right to withdraw the ship. It followed that failure to pay hire punctually was being treated as being in the same category as breach of any other essential term. Against that Mr Goff contended that the use of the epithets ‘punctual’ and ‘regular’ added nothing or little to the word ‘payment’ standing alone; and that reservation of an express right of withdrawal for failure to pay hire tended to show that the obligation was not otherwise of such a character as to be an essential term.

- - - - -

I have considered these arguments carefully and I have reached the conclusion that there is nothing in clause 5 which shows clearly that the parties intended the obligation to pay hire punctually to be an essential term of the contract, as distinct from being a term for breach of which an express right to withdraw was given. It follows that I decide the first point of construction in favour of the charterers.”

- - - - - - - 124. - -

He went on at pp. 408D-409F to consider the “so long as” construction point, on which he distinguished The Georgios C by reason of the difference in the wording of the NYPE withdrawal clause before him from that of the Baltime clause under consideration in The Georgios C, rejecting the “so long as” construction and holding that the right to withdraw accrued as soon as there was a default in payment and could not be defeated by a subsequent payment or tender of hire, in the absence of waiver. He then considered and rejected the second of the owners’ three alternative arguments, that of repudiatory breach of an innominate term at pp.409F-410A. The upshot was that the owners were held to be entitled to terminate contractually but not at common law. I agree with Flaux J that Brandon J’s decision on the condition point was part of the ratio, because it was one of a number of reasons for his decision.

- - - - 125. - -

In the Court of Appeal, owners’ entitlement to withdraw was upheld as a contractual termination under the clause, rejecting charterers’ “so long as” construction and distinguishing The Georgios C on the different wording of the clauses: Edmund Davies LJ at pp. 951F-953H, Megaw LJ at pp. 957C, 957G-958H, Cairns LJ at p.971A-G.

- - - - 126. - -

Owners’ alternative argument, that there was a common law termination apart from the contractual right of termination, was the subject of a cross appeal. The argument was addressed by Edmund Davies LJ, in these terms at p. 956C-E:

- - - - “6. - -

Repudiation

- - - - -

It remains to deal with the owners’ cross-notice. This relates to Brandon J.’s rejection of the plea contained in paragraph 13 of the defence that the charterers’ failure to pay the April hire punctually, following as it did on persistent late payments and notwithstanding the owners’ protests in January and February 1970,. . . “constituted a breach of condition and/or a repudiation and/or fundamental breach of the charterparty . . .” which entitled the owners to rescind by withdrawing the ship. Mr. Anthony Evans evinced no enthusiasm in supporting this plea, and that, I think, was wholly understandable. Brandon J. said [1973] 1 W.L.R. 386, 409:

- - - -

“In order to justify a decision that the charterers’ conduct was repudiatory it would be necessary to find that they evinced clearly by it an intention not to be bound by the terms of the contract.”

- - - -

He declined to hold that they had, and, on the whole of the evidence, I agree with him.”

- - - - - - - - 127. - -

Although he refers to the pleaded case of breach of condition, Edmund Davies LJ only addresses the argument of repudiatory breach of an innominate term, not breach of condition, citing the passage in Brandon J’s judgment where he dealt with the repudiatory breach point discretely. Similarly Megaw LJ addressed the argument solely as one of repudiatory breach of an innominate term at p. 963A-B:

- - - - -

“The repudiation question

- - - - -

The owners contend that the history of belated hire payments by the charterers is such that the owners were entitled to treat the charterparty contract as at an end, apart altogether from the “failing punctual payment” clause. Once again, because of the assignment, there might be difficulties for the owners in relying on late payments, the right to receive which they had transferred to another person. In any event, however, with all respect, the argument on behalf of the owners wholly failed to convince me that there was any possible basis for disagreeing with the view held and expressed by Brandon J, who rejected this submission on his review of the relevant facts.”

- - - - - - - - 128. - -

Flaux J said at paragraph [72] of The Astra that nothing in the judgments in the Court of Appeal suggests that the condition point was argued, and that there is therefore nothing in the Court of Appeal judgments which assists on the current issue. I agree that the judgments contain nothing to indicate that Mr Evans addressed the condition point as a separate argument. Nevertheless the repudiation ground was maintained by Mr Evans, even if with little enthusiasm (the report suggests that it was described by Mr Evans in argument as “academic since no damages have been claimed by the owners”) and all three members of the Court must have had in mind the alternative route to common law termination, that of breach of condition, which was separately addressed by Brandon J in the judgment being appealed and expressly adverted to as part of the owners’ pleaded case by Edmund Davies LJ in the passage quoted above. Even if one were to treat the condition point as conceded by owners in the Court of Appeal, I regard it as significant that no member of the Court expressed any reservation about that aspect of Brandon J’s decision, which if wrong would have rendered the debate on the construction point otiose and meant that the argument on repudiation was conducted and addressed on the false footing that payment of hire was an innominate term. The decision involves at least implicit approval by a strong Court of Appeal of Brandon J’s decision that payment of hire was not a condition.

- - - - 129. - -

In Steelwood Carriers Inc v Evimeria Compania Vaviera SA (The Agios Giorgis) [1976] 2 Lloyd’s Rep 192 charterers under a time charter on the NYPE form withheld a sum from a monthly instalment of hire in respect of a speed claim. The owners instructed the master not to discharge and two days were lost before the charterers paid the balance and discharge occurred. The umpire determined that the charterers’ deduction for the speed claim was excessive, such that there had been a default in payment of hire. Upon the hearing of a case stated owners argued that clause 5 granted a right to make a temporary withdrawal of the vessel as much as a permanent one. In support of this argument it was contended that the payment of hire was a condition precedent to performance by the owners and that the obligations of the charterers to pay hire in advance and of continued performance were concurrent conditions requiring mutuality. Mocatta J said at p. 201 col 2:

- - - - -

“Although when Lord Tenterden first wrote his famous text-book on Shipping it was not the practice to provide for hire to be paid in advance and for time charterers to grant an express right of withdrawal on non-payment of such advance payments, these provisions have been common form in time charters in this country and the United States for generations. I think there is much weight in Mr. Pollock’s argument that if the word “withdrawal” bore the construction sought to be placed upon it by Mr. Hallgarten so as to include temporary withdrawal or suspension, this would inevitably have come up for decision in the Courts before now. The Courts seem to have treated the word “withdrawal” as equivalent to “cancellation", an interpretation which, if I may say so with respect, seems to me the natural one.”

- - - - - - - - 130. - -

Having referred to The Antonios Mavrogordatos and The Petrofina amongst other authority, he went on at p. 202 cols 1-2:

- - - - -

“Apart from these authorities and the remarkable absence of any authority the other way, I thought there was force and relevance in Mr. Pollock’s submission that payment of hire is not a condition precedent in the contract to immediate further performance by the shipowner. Thus in The Brimnes both Mr. Justice Brandon, [1972] 2 Lloyd’s Rep. 465 and 483, and the Court of Appeal [1974] 2 Lloyd’s Rep. 241 at pp. 252, 256 and 262, held that late payment of hire was not of itself repudiatory entitling the owners, in the absence of a withdrawal provision, to terminate the charter. In this connection his citation of Leslie Shipping Co. v. Welstead, (1921) 7 Ll.L.Rep. 251; [1921] 3 K.B. 420, was interesting. There Mr. Justice Greer (as he then was) said at pp. 253 and 426 that the withdrawal clause was inserted in the charter for the benefit of the shipowners giving them an express right to withdraw the vessel and making it impossible that there should be any discussion about the matter. If timely payment of hire was a condition precedent, there would have been no relevance in this comment. .

- - - - -

If hire still remains payable should the services of the ship be withdrawn for a period without this amounting to a repudiation which is accepted, then I do not think there is that close concurrent mutuality for which Mr. Hallgarten argued.”

- - - - - - - - 131. - -

Although I have not found this passage entirely easy, it is clear at least that it treats The Brimnes as correctly deciding that payment of hire is not a condition, and raises the further point that were it a condition there would be no need for a contractual right of termination to be inserted for the benefit of the shipowner because it would not enlarge his common law rights.

- - - - 132. - -

The decision in The Georgios C was subsequently overruled by the House of Lords in Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia (The Laconia) [1977] AC 850, another case on the NYPE form of charterparty. In that case hire was due on a Sunday, the charterers’ bank tendered payment to the owners’ bank by delivery of a payment order on the Monday afternoon, the payment order was accepted and began to be processed for credit to the owners’ account, but before such credit the owners gave notice of withdrawal. Again the market had risen substantially since the date of the charter and the only issue was the owners’ right to withdraw, not any claim for damages. The arbitrators and Donaldson J held that the owners were entitled to withdraw, the Court of Appeal by a majority that they were not. Lord Denning, in the majority, gave as one ground that the withdrawal clause was a forfeiture clause and that the law will not enforce such a clause after payment or tender, relying on a previous dictum of his to that effect in The Georgios C. The House of Lords allowed the appeal, holding that the right to withdraw accrued the moment the charterers were in default of payment and the right to withdraw remained exercisable for a reasonable time thereafter, in the absence of waiver, despite the late tender or payment of hire by the charterers in the meantime.

- - - - 133. - -

Lord Wilberforce said at p. 867 that the result turned upon two and only two questions, namely the construction of the withdrawal clause and waiver. It is apparent that so far as relevant to the present issue the reversal of the The Georgios C was confined to the point that the withdrawal clause was operative only for so long as hire remained unpaid. Lord Wilberforce rejected the “so long as” construction as contrary to the unambiguous wording of the withdrawal clause and endorsed the decision of Brandon J and the Court of Appeal in The Brimnes to that effect (pp. 867G-868A). He criticised The Georgios C construction on the wording of the Baltime clause in that case, and insofar as it suggested a “so long as” construction could apply to other standard withdrawal clause wordings (pp. 868C-869E). He went on to criticise Lord Denning’s approach in the decision under appeal, and in the The Georgios C, to the effect that, by reference to an analogy with forfeiture clauses, there was a general bar to reliance on a withdrawal clause if tender or payment was made before withdrawal (pp. 869A-870D). In this last context he said:

- - - - -

“As has often been pointed out the description of a time charter as a hire or demise of a ship is very misleading: all that the owner does, in fact, is to agree to provide services, those of the master and the crew (whose wages the owner has - punctually - to pay) in sailing the ship for the charterers’ purposes, and all that the withdrawal clause does is to entitle the owner to cease providing these services (for example see Lord Porter in the Tankexpress [1949] A.C. 76, 90). It must be obvious that this is a very different type of creature from a lease of land. I would certainly go so far as to agree that the owner has to show that the conditions necessary to entitle him to withdraw have been strictly complied with: but equally I would not overlook the fact that there are very good reasons why the charterer should punctiliously comply with the provisions as to the payment of hire in which the owner has an interest very different from that of a landlord whose essential interest is to receive the rent.”

- - - - - - - - 134. - -

The “good reasons” for punctilious payment of hire no doubt included those articulated by Mr Hobhouse QC in argument at p. 854A-C:

- - - - -

“A time charter is a contract for the provision of services. Much of its language has historical origins and is not appropriate to modern times: see Sea and Land Securities Ltd. v. William Dickinson and Co. Ltd. [1942] 2 K.B. 65, 69. During the provision of the services the shipowner bears the cost of running the vessel from day to day. For this he is to get the hire in advance because the owner puts the profit earning capacity of the ship at the disposal of the charterer. The freights are collected by the charterer; the shipowner never sees these profits. The shipowner is not obliged to perform the services on credit; he does so only against advance payment. He stipulates for and is entitled to advance payment monthly or fortnightly. He is not obliged to provide the services here for a given fortnight until he has had payment in full in respect of it: see Tankexpress A/S v. Compagnie Financière Belge des Petroles S.A. (The Petrofina)[1949] A.C. 76, 81, 89-90, 91, 93, 94, 97, 99-100, 102, 105. The withdrawal clause allows the shipowner to put an end to the contract.”

- - - - - - - - 135. - -

To these may be added two further reasons why prompt payment of hire in advance may be of importance to owners. First it is commonplace for vessels to be mortgaged on terms which require punctual payment of instalments to the bank, with any default triggering acceleration of repayment of the loan and the bank’s right to realise its security by selling the mortgaged vessel. Where the owners are part of a group owning a fleet of vessels there may be cross default provisions, such that any one failure to meet a repayment instalment to one bank in respect of one vessel may have this effect across part or all of the fleet. Punctual payment of hire is of importance to owners in such circumstances in order to meet their financing obligations. Secondly, the term must bear the same categorisation where it appears in an intermediate charter in a string of time charters, which are sometimes on back to back terms save as to rates, as it bears in the head charter or where there is no string. Where hire is due to a disponent owner under an intermediate charter, the disponent owner may be dependent upon punctual receipt to fulfil his own hire obligations to pay hire under the head charterparty.

- - - - 136. - -

Lord Simon agreed with Lord Wilberforce. Lord Salmon expressed similar views on The Georgios C being wrong as a matter of construction of the Baltime clause at p. 876A-G, and on analogy with forfeiture cases being inapposite at p. 878A-F. He emphasised the need for commercial certainty at p. 878E-G. Lord Fraser treated The Georgios C as being wrongly decided as a matter of construction at pp. 882H-883D, as did Lord Russell at pp. 887A-888C. Lord Fraser also emphasised the need for certainty at pp. 882H-883E.

- - - - 137. - -

There is to my mind nothing in these criticisms of The Georgios C, or in the criticism of Lord Denning’s reliance on a forfeiture analogy, which undermines Brandon J’s reliance on The Georgios C in The Brimnes for the point currently under debate, namely that payment of hire is not a condition any breach of which gives rise to a common law right of termination but merely triggers a contractual right of termination. Brandon J did not follow The Georgios C on the “so long as” construction point, which was the aspect of the latter case which the House of Lords held to be erroneous, but rather distinguished it. The proposition for which Brandon J treated The Georgios C as authoritative was that articulated by Donaldson J and by Lord Denning, namely that there was no common law right to terminate for repudiation on the grounds that time was of the essence, so that, absent conduct which would be a repudiatory breach of an innominate term, the right of withdrawal depended upon the construction of the clause. There is no hint of any criticism in the speeches of the House of Lords in The Laconia of this aspect of the reasoning in The Georgios C. They contain no analysis of the categorisation of the term as a condition or innominate term, or of whether time was of the essence.

- - - - 138. - -

China Trade Corporation v Evoglia (The Mihalios Xilas) [1979] 1 WLR 1018 was a withdrawal case which turned on its particular facts, in which the House of Lords again criticised Lord Denning’s continued determination to relieve charterers from the strict effect of withdrawal clauses by invoking the analogy of forfeiture clauses. The hire clause was in bespoke terms providing for withdrawal “in default of payment”. The payment of hire for the final instalment was deficient because, as the umpire held, the charterers’ deductions for the length of the final voyage and bunkers on board at redelivery were unreasonable. Before Kerr J and in the appeals there was no dispute that there was a default in payment of hire and the argument was addressed to whether owners had waived the right to withdraw in reliance on the withdrawal clause. In the Court of Appeal Lord Denning and Eveleigh LJ held, for different reasons, that they had waived the right, with Geoffrey Lane LJ dissenting. The House of Lords allowed the appeal. At pp. 1024H-1025A Lord Diplock criticised Lord Denning’s approach to the whole case as coloured by a view that withdrawal clauses contained the “distasteful characteristics” of a forfeiture clause which would justify the court finding one or other of a variety of excuses for refusing to give effect to it. Lord Salmon said at p. 1032B-G:

- - - - -

“My Lords, it would seem that there are some members of the Court of Appeal who do not approve of the Baltime form of charter and other forms of charter such as the New York Produce Exchange and the Shelltime forms which closely resemble it. These forms of charter are undoubtedly very strict in relation to the due payment of hire: their meaning, however, is perfectly clear and it is not permissible to put a construction upon them which would depart from that meaning. Unless the full amount of hire is paid by its due date the owners have the undoubted right to withdraw their vessel providing they do so within a reasonable time of the charterers’ default. The only exception is when the parties by their course of conduct (a) have as in the present case accepted that disbursements made by the charterers in respect of the owners’ liabilities may be deducted from the hire subject to vouchers being produced, or e.g., (b) have accepted as in Tankexpress A/S v. Compagnie Financière Belge des Petroles S.A. [1949] A.C. 76 that the amount of hire posted two days before it falls due shall be deemed to have been paid in time. Otherwise, unless the full hire is paid by the time it falls due the charterers are in default and the vessel may be withdrawn. On the appeal to your Lordships’ House in The Laconia [1977] A.C. 850 I ventured to point out that the law relating to the owners’ rights under a Baltime form of charter to withdraw their vessel should the charterers fail to pay the hire in time had been clearly stated by your Lordships’ House in the Tankexpress case; but that a great deal of doubt on the subject had since been generated by the Court of Appeal in The Georgios C [1971] 1 Q.B. 488 and had troubled the waters ever since. I expressed the hope that those doubts might finally be dispelled by your Lordships’ reversal of the Court of Appeal’s decision in The Laconia and overruling its decision in The Georgios C. These doubts were, however, temporarily revivified by the decision of the Court of Appeal in the present case but will now, I think, permanently be laid to rest by your Lordships’ decision allowing this appeal; Certainty of meaning is of primary importance in all commercial transactions. Commercial contracts all over the world, having nothing to do with the United Kingdom, have for generations provided that any dispute arising under the contract shall be decided in the English commercial court or by arbitration in London according to English law. This is because of the confidence which exists throughout the commercial world in the administration of English justice. I fear that this confidence will hardly be strengthened should there be any further decisions in the Court of Appeal similar to those in The Georgios C, The Laconia and the instant case.”

- - - - - - - - 139. - -

I shall return to the subject of commercial certainty in due course, but the criticism of Lord Denning’s approach in this case casts no doubt upon what he said about common law repudiation in The Georgios C or upon Brandon J’s reliance upon it in The Brimnes.

- - - - 140. - -

In an earlier passage at page 1031G-H Lord Salmon said:

- - - - -

“The Baltime form of charter and others which closely resemble it may be hard on charterers, especially when the market for hiring vessels rises sharply during the span of the charter. Certainly there are other forms of charter which are not so strict. It must, however, be remembered that charterers and shipowners are usually hard-headed and experienced businessmen who freely agree upon which form of charter they will adopt.”

- - - - - - - - 141. - -

I make two observations about this passage. First, it emphasises that the terms of a right of withdrawal are a matter for contractual bargain between the parties, and presupposes that payment of hire would not be treated as a condition absent such a contractually negotiated right of termination. Secondly, Lord Salmon there seems to contemplate that the principal risk to charterers from a stringent clause is losing a profitable charter in a risen market, not an exposure to damages in a fallen market, an approach which assumes that the clause is an option to cancel, rather than conferring on the payment term the status of condition so as to give rise to a common law right of termination and damages. If payment of hire were a condition entitling owners to terminate at common law and claim damages, charterers’ exposure would be just as great if the market had fallen as if it had risen. On a risen market the charterers would bear the market difference by having to charter in at a higher rate; in a fallen market charterers would have to pay owners for the fall in the rate as damages for repudiation.

- - - - 142. - -

In A/S Awilco v Fulvia S.p.a. di Navigazione (The Chikuma) [1981] 1 WLR 314 the charter was on the NYPE form providing for payment of hire in cash. Hire was due on 22 January, at which time the charterers’ bank had made a telex transfer of the instalment to owners’ bank for value on 26 January. This was held by the House of Lords not to constitute timeous payment under the clause because owners’ access to the funds on 22 January was not unconditional, with the result that owners’ withdrawal of the vessel on 24 January was valid. Lord Bridge, giving the leading speech, observed that exercises of judicial ingenuity to mitigate the rigours of shipowners’ rights to withdraw vessels for non payment of hire had not had a happy history. He cited the passage from Lord Wright in The Petrofina which I have quoted above, referring to the importance of advance hire to owners in justifying “the stringency of the right to cancel”, and of Lord Salmon in The Laconia stressing the importance of certainty in commercial transactions (p. 321B-H).

- - - - 143. - -

Afovos Shipping Co SA v R. Pagnan & F.lli (The Afovos) [1983] 1 Lloyds’s Rep 335 involved a time charter on the NYPE form with an anti-technicality clause providing that if hire was not paid, the owners were to give the charterers 48 hours’ notice and could not withdraw the vessel if the hire was paid within such period. The last day for payment of hire was 14 June. On 11 June the charterers instructed their bank to remit the hire due on 14 June to the owners’ bank in London as required by clause 5. The charterers’ bank purported to comply by sending a telex transfer to the owners’ London bank on 13 June, but in error, the telex was sent to a sand and silica merchant in Reigate. The owners served a 48 hour notice at 16.40 on 14 June, to which the charterers replied that the hire had been sent by telex transfer. When payment had still not been received on 18 June, the owners withdrew the vessel. The error in relation to the telex was only discovered on 19 June. The dispute concerned whether the 48 hour notice had been given prematurely. Both the Court of Appeal and the House of Lords held that it had, since at 16.40 on 14 June, the charterers were not yet in breach of clause 5. Of relevance to the present debate is owners’ argument that the charterers were in anticipatory breach of contract when the notice was served having disabled themselves from paying the hire that day by 16.40, because that was after banking hours. Lord Diplock (with whom Lords Hailsham, Keith, Brightman and Roskill agreed) said at p. 341:

- - - - -

“Nevertheless the doctrine of anticipatory breach by conduct which disables a party to a contract from performing one of his primary obligations under the contract has in my view no application to a breach of such a clause.

- - - - -

The relevant portions of cl. 5 have been set out by the Lord Chancellor. The first part of the clause imposes upon the respondents as charterers a primary obligation to pay the “said hire” (which by cl. 4 had been fixed at a monthly rate and pro-rata for any part of a month) punctually and regularly in advance by semi-monthly instalments in the manner specified, which would involve the payment of a minimum of 42 and a maximum of 54 instalments, during the period of the charter. Failure to comply with this primary obligation by delay in payment of one instalment is incapable in law of amounting to a “fundamental breach” of contract by the charterers in the sense to which I suggested in Photo Production Ltd. v. Securicor Transport Ltd., [1980] 1 Lloyd’s Rep. 545; [1980] A.C. 827 at pp. 553 and 849, this expression, if used as a term of legal art, ought to be confined. The reason is that such delay in payment of one half-monthly instalment would not have the effect of depriving the owners of substantially the whole benefit which it was the intention of the parties that the owners should obtain from the unexpired period of the time charter extending over a period of between 21 and 27 months.

- - - - -

The second part of cl. 5, however, starting with the word “otherwise” goes on to provide expressly what the rights of the owners are to be in the event of any such breach by the charterers of their primary obligation to make punctual payment of an instalment. The owners are to be at liberty to withdraw the vessel from the service of the charterers; in other words they are entitled to treat the breach when it occurs as a breach of condition and so giving them the right to elect to treat it as putting an end to all their own primary obligations under the charter-party then remaining unperformed. But although failure by the charterers in punctual payment of any instalment, however brief the delay involved may be, is made a breach of condition it is not also thereby converted into a fundamental breach; and it is to fundamental breaches alone that the doctrine of anticipatory breach is applicable.”

- - - - - - - - 144. - -

In this passage Lord Diplock uses the expression “fundamental breach” as connoting a repudiatory breach of an innominate term in contradistinction to the species of repudiatory breach comprising breach of condition. He had recently expressed the view in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849D-F that the expression “fundamental breach” should be confined to such use and not extend to breach of condition. His statement that it is to fundamental breaches alone, in this sense, that the doctrine of anticipatory breach is applicable, is problematic: see the discussion in Treitel The Law of Contract 13th edn at 17-083. I find it difficult to reconcile with the principled explanation of the rationale underlying the doctrine of anticipatory breach in Universal Carriers v Citati, namely that the innocent party is entitled to assume that there will inevitably happen that which the other party has made clear he intends to happen, and so does not have to wait until the inevitable occurs: see pp. 436-438. This applies as much to anticipatory breaches of condition as to anticipatory repudiatory breaches of innominate terms.

- - - - 145. - -

The decision can be explained on the basis suggested in Treitel, and in Chitty on Contracts at paragraph 24-032, that the doctrine of anticipatory breach cannot be applied to a contractual right of termination and that the latter cannot be exercised until its terms are fulfilled. This raises the question whether, as the editors of Wilford on Time Charters had suggested as a possible interpretation prior to the decision in The Astra, this passage merely treats the clause as one which gives rise to a contractual right of termination because it confers a right to terminate in the same circumstances as a right to terminate would arise if payment were a condition. In The Astra at paragraph [91] Flaux J described the latter argument as an impermissible gloss. I agree. Whilst I would have been attracted to such an interpretation solely on a reading of the language used taken in isolation, the passage must be read in the light of Lord Diplock’s clearly stated view in an obiter dictum five years earlier in United Scientific Holdings v Burnley Borough Council [1978] AC 904 at 924 that “in a charterparty a stipulated time of payment is of the essence” and his careful use of language distinguishing a fundamental breach from a breach of condition in Photo Production and The Afovos itself, and again later in The Antaios (see below). Lord Diplock’s analysis is that the effect of the withdrawal provision is to make the payment term a condition although in the absence of the withdrawal provision it would be an innominate term.

- - - - 146. - -

In Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694, the House of Lords rejected the argument that charterers could invoke the equitable doctrine of relief from forfeiture so as to avoid the effect of owners’ right to withdraw for non payment of hire under the Shelltime 3 form. The question whether the term was a condition was not directly in issue, but was relevant to a number of ways in which the argument was framed in relation to relief from forfeiture: see pp. 696C, 696F-G and 697G-H. It appears to have been conceded by Mr Steyn QC on behalf of the charterers, as he then was, that payment of hire was a condition.

- - - - 147. - -

Lord Diplock, with whom Lords Keith, Scarman, Roskill and Bridge agreed, endorsed the statement of Lord Wilberforce in The Laconia that a time charter was a very different type of creature from a lease of land. He said at p. 702D-E

- - - - -

“Moreover, in the case of a time charter it is not possible to state that the object of the insertion of a withdrawal clause, let alone the transaction itself, is essentially to secure the payment of money. Hire is payable in advance in order to provide a fund from which the shipowner can meet those expenses of rendering the promised services to the charterer that he has undertaken to bear himself under the charterparty; in particular the wages and victualling of master and crew, the insurance of the vessel and her maintenance in such a state as will enable her to continue to comply with the warranty of performance.”

- - - - - - - -

He went on at p. 703A

- - - - -

“All the analogies that ingenuity has suggested may be discovered between a withdrawal clause in a time charter and other classes of contractual provisions in which courts have relieved parties from the rigour of contractual terms into which they have entered can in my view be shown upon juristic analysis to be false. Prima facie parties to a commercial contract bargaining on equal terms can make “time to be of the essence” of the performance of any primary obligation under the contract that they please, whether the obligation be to pay a sum of money or to do something else. When time is made of the essence of a primary obligation, failure to perform it punctually is a breach of a condition of the contract which entitles the party not in breach to elect to treat the breach as putting an end to all primary obligations under the contract that have not already been performed. In Tankexpress A/S v. Compagnie Financière Belge des Petroles S.A. [1949] A.C. 76 this House held that time was of the essence of the very clause with which your Lordships are now concerned where it appeared in what was the then current predecessor of the Shelltime 3 charter. As is well-known, there are available on the market a number of so-(mis)called “anti-technicality clauses,” such as that considered in The Afovos, which require the shipowner to give a specified period of notice to the charterer in order to make time of the essence of payment of advance hire; but at the expiry of such notice, provided it is validly given, time does become of the essence of the payment.”

- - - - - - - - - 148. - -

This is a further clear statement of Lord Diplock’s view that the effect of the withdrawal clause was to make the payment of hire a condition. It is also a statement that such was what was decided by The Petrofina, although as I have sought to explain, I do not regard the latter decision as going so far.

- - - - 149. - -

In Antaios Compania SA v Salen AB (The Antaios) [1985] 1 AC 191 the owners withdrew the vessel, not for non payment of hire, but relying on the wording of the other half of the NYPE form withdrawal clause “or on any breach of this charterparty”. The breach relied upon was the issue of inaccurate bills of lading. The arbitrators rejected owners’ entitlement to withdraw on the grounds that “any” breach meant any repudiatory breach, a conclusion which was unanimously upheld by the House of Lords. In the leading speech Lord Diplock, (with whom amongst others Lord Brandon agreed) said at pp. 200E-201B.

- - - - -

“The arbitrators decided this issue against the shipowners. The 78 pages in which they expressed their reasons for doing so contained an interesting, learned and detailed dissertation on the law, so lengthy as to be, in my view, inappropriate for inclusion in the reasons given by arbitrators for an award. Their reasons can be adequately summarised as being (1) that “any other breach of this charter party” in the withdrawal clause means a repudiatory breach - that is to say: a fundamental breach of an innominate term or breach of a term expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongfully repudiated by the charterers, a category into which in the arbitrators’ opinion the breaches complained of did not fall, and (2) that even if that were wrong, the word “on” immediately preceding “any other breach” meant “within a reasonable time of” their first knowledge of the breach; and the shipowners, in the arbitrators’ opinion, had not given notice of withdrawal until after such reasonable time had expired.

- - - - -

To the semantic analysis, buttressed by generous citation of judicial authority, which led the arbitrators to the conclusions as to the interpretation of the wording of the withdrawal clause that I have summarised, the arbitrators’ added an uncomplicated reason based simply upon business commonsense:

- - - -

“We always return to the point that the owners’ construction is wholly unreasonable, totally uncommercial and in total contradiction to the whole purpose of the N.Y.P.E. time charter form. The owners relied on what they said was 'the literal meaning of the words in the clause'. We would say that if necessary, in a situation such as this, a purposive construction should be given to the clause so as not to defeat the commercial purpose of the contract.””

- - - - - - - - - 150. - -

The case does not bear directly on whether payment of hire is a condition, but I mention it for three reasons. First it is further evidence of Lord Diplock’s terminology using the expression “fundamental breach” as the species of repudiatory breach which is a breach of an innominate term, in contradistinction to breach of a condition. Secondly, the wording of the NYPE 1993 form clause has been revised to replace “any breach” with “any fundamental breach”. This might be taken to be a conscious adoption of the effect and language of The Antaios, including Lord Diplock’s terminology; if so it would suggest that the second half of the clause in the new form is narrower than the interpretation put upon the 1946 form as applying to any repudiatory breach whether a fundamental breach or a breach of condition, a point to which I will return when considering arguments on the language of clause 11. Thirdly, Rix LJ later referred to The Antaios as supportive of there being a good argument that payment of hire was a condition. I do not myself see that it provides any support for that proposition.

- - - - 151. - -

In ENE 1 Kos Ltd v Petroleo Brasiliero SA (The Kos) [2012] 2 AC 164 the charter was on the Shelltime 3 form, with no anti-technicality clause. Owners gave notice of withdrawal for non payment of hire, which was disputed, following which the charterers had continued use of the vessel for some 2½ days in discharging. Owners claimed some US$400,000 for charterers’ use and detention of the vessel on alternative bases, the first being as damages for non payment of hire and the second for an indemnity under clause 13 for the master’s failure to comply with the charterers’ orders. The latter basis succeeded in the Supreme Court. Counsel for the owners, Mr Eder QC as he then was, made clear that in arguing the case for damages for non payment of hire he was not arguing that it was a breach of condition. At first instance ([2010] 1 Lloyd’s Rep 87) Andrew Smith J said at paragraphs [37]-[38]:

- - - - “37. - -

In presenting this part of the owners’ argument, Mr Eder emphasised that the owners do not contend that it was a repudiation of the charterparty not to pay hire, at least in the case of a failure to pay for as short a period as in this case. The point is not straightforward: as Rix LJ said in Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436 at para 80, there must be a good argument that ‘the express right to withdraw in the case of unpunctual payment under such a clause is a breach of a condition of the contract, breach of which is in itself repudiatory’. However, the general view is, I think, that a failure to pay hire when it is due is a breach of an intermediate term, and not necessarily repudiatory and does not in itself entitle the owner to claim damages for loss resulting from the termination of the charterparty: see Time Charters, 2008, 6th Edition, at paras 16.128 and 16.132. Even if the owners had argued otherwise and I had been persuaded to award damages for such loss, the damages resulting from the termination of the charterparty would not be based upon the market rate of hire but the contractual rate, and no such claim has been advanced.

- - - - 38. - -

In these circumstances, I cannot accept that the owners’ claim is recoverable as damages for the failure to pay hire. I agree with the charterers’ submission that, once the breach is not said to be repudiatory, it is an answer to the claim that the loss was not effectively caused by their failure to pay hire on time because the owners’ decision to withdraw the vessel breaks the chain of causation. This is, I think, why Lord Denning MR said in Tropwind AG of Zug v Jade Enterprises Ltd (The Tropwood) (No 2) [1982] I Lloyd’s Rep 232 at page 237 (in a passage to which I refer further below): ‘The damages for such a breach would be trifling’.”

- - - - - - - - 152. - -

In the Supreme Court, again it appears that new counsel for the owners did not contend that the failure to pay hire was repudiatory. Nevertheless both Lord Sumption and Lord Mance, whose experience in this area of the law is considerable, expressed the view that payment of hire was not a condition. Lord Phillips and Lord Walker agreed with Lord Sumption (as did Lord Clarke although expressed on more limited grounds). Lord Sumption said at paragraphs [6]-[7]

- - - - 6. - -

Under all the remaining heads of claim, the charterers argument is substantially the same, namely that any delay or loss arising from the need to discharge the cargo results from the owners’ decision to withdraw. That was a decision made at their own election and for their own commercial purposes. The owners, it is said, must bear the adverse as well as the beneficial consequences of an optional decision made in their own interest. It is clear that this consideration influenced both courts below, and that it was decisive in the minds of the Court of Appeal.

- - - - 7. - -

The factual premise of the argument is of course correct. It is axiomatic that a withdrawal clause operates at the election of owners, and not automatically. Two main consequences follow from this. The first is that owners will not exercise their right of withdrawal unless it is in their commercial interest to do so. Usually, this will be because market rates of hire have risen. But it may be in owners’ interest to withdraw the vessel even if they have not risen, for example, where the charterers are insolvent or owners depend on prompt payment to fund payments under a head charter or charterers’ payment record occasions administrative or other difficulties. The second consequence is that any failure on the part of the charterers to pay hire when it falls due will not of itself entitle the owners to damages representing the loss of the bargain or the expenses of termination simply because the owners respond by withdrawing the vessel. This is because the non-payment does not itself destroy the bargain or occasion the expenses, unless in the circumstances it is a repudiation which owners have accepted as such. But the present claim is not a claim for damages, and the non-payment of the June 2008 hire payment in this case was not a repudiation. This, however, is as much as can usefully be said. The fact that rather than perform the contract the owners found it more advantageous to exercise an express right of termination is morally and legally neutral. There are no standards by which the owners’ reasons may be judged, other than those to be found in the contract. There is no legal policy specific to termination rights restricting their availability or the consequences of their exercise more narrowly than does the language of the contract or the general law. More generally, the reasons for any particular withdrawal cannot affect the principle to be applied in resolving an issue like the present one.”

- - - - - - - - 153. - -

Lord Mance said in a speech which concurred with the majority as to the result but dissented on the application of the indemnity clause:

- - - - “52. - -

The general contractual context in my view also supports a conclusion that the express indemnity clause is inapt to apply to the present situation. Clause 8 of the charterparty gives owners a simple contractual option. It is accepted that the mere late payment of one instalment did not constitute a repudiatory breach (or a breach of a condition in a sense like that used in the Sale of Goods Act 1979) which could entitle the owners to damages for loss of the charter. That loss flowed from the owners’ exercise of their option to withdraw. The phrase in clause 8 “without prejudice to any claim owners may otherwise have on charterers under this charter” does not create a right of action, and looks on its face only to pre-existing claims. So there is no way in which the time spent discharging in Angra dos Reis can be claimed as damages.”

- - - - - - - -

The authorities on categorisation of terms as conditions and time being of the essence

- - - - - 154. - -

The starting point is the seminal judgment of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kishen Kaisha Ltd [1962] 2 QB 26. His analysis begins by equating events which are sufficiently serious to bring a contract to an end for breach with those which are sufficiently serious for frustration, and treats the various metaphors used to define such seriousness as encapsulated in a test of whether the event deprives the party of substantially the whole benefit of the contract (p.66). After a survey of the historical development of the law on conditions and warranties he states at pp. 69-70:

- - - - -

“No doubt there are many simple contractual undertakings, sometimes express but more often because of their very simplicity (“It goes without saying”) to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a “condition.” So too there may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and such a stipulation, unless the parties have agreed that breach of it shall entitle the non- defaulting party to treat the contract as repudiated, is a “warranty.”

- - - - -

There are, however, many contractual undertakings of a more complex character which cannot be categorised as being “conditions" or "warranties,” if the late nineteenth-century meaning adopted in the Sale of Goods Act, 1893, and used by Bowen L.J. in Bentsen v. Taylor, Sons & Co. be given to those terms. Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that be should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a “condition” or a “warranty.”

- - - - - - - - 155. - -

This passage identifies that a term is to be categorised as a condition only if any predicated breach would deprive the innocent party of substantially the whole benefit of the contract, in the absence of agreement between the parties that a breach shall entitle the innocent party to treat the contract as repudiated. This qualification is not to be elevated into a principle that a contractual right of termination on any breach of the term is indicative that it is a condition. To have such effect it must be an agreement that the breach shall “entitle the defaulting party to treat the contract as repudiated”, in the words of Diplock LJ. A contractual right to terminate may or may not be such an agreement, depending upon its proper construction; it may be no more than an option to cancel, as Diplock LJ himself made clear in Financings v Baldock a year later. I would therefore reject the submission of counsel for the owners in The Astra, recorded at paragraph [39], that the logical corollary of Diplock LJ’s analysis of what constitutes a condition is that if the contract provides for a right to terminate, that is a very strong indication that the term in question is a condition. This seems to me to turn the passage on its head. The essential test proposed is whether the term is one any predicated breach of which deprives the innocent party of substantially the whole benefit of the contract. This may be modified by the agreement of the parties that a breach will entitle the innocent party to treat the contract as repudiated. A contractual termination clause may be one which provides that the agreement is to be treated as repudiated at common law, or may be one which treats the contract as cancelled in futuro as a matter of contractual option. Which of two consequences is intended is a question which falls to be considered as a matter of interpretation of the termination provision and the other terms of the contract. The mere existence of a termination provision tells one nothing about the status of the term without discovering the intention of the parties as to the consequences of the contractual right of termination by this process of interpretation.

- - - - 156. - -

In Bunge v Tradax [1981] 1 WLR 711, buyers purchased a quantity of soya bean meal on fob terms to be shipped in three instalments in each of the months May, June and July 1975. Buyers were required to give 15 days notice of readiness of a vessel to lift the shipments at a loading port thereafter to be nominated by the sellers. The first monthly shipment was extended to June, the last day for shipment by sellers being 30 June, and consequently the last date for notice of readiness of a vessel to be given by buyers, allowing for loading time, was 12 June. Notice was not given by buyers until 17 June, 5 days late. Sellers treated the buyers as in default and claimed damages for repudiation on the ground that the notice of readiness term was a condition, a contention which succeeded in the Court of Appeal and House of Lords. In the Court of Appeal ([1980] 1 Lloyd’s Rep 294) Megaw LJ gave the leading judgment, which was subsequently expressly endorsed by the House of Lords in the speeches of Lord Wilberforce and Lord Roskill. He took as his starting point (p.303 col 1) that it was an accepted principle of English law that in a contract for the sale of goods the seller’s stipulated time of delivery is prima facie of the essence, citing in support Lord Diplock’s speech in the United Scientific Holdings case, and reasoned that since the purpose of the buyers’ notice of readiness was to give the sellers what the parties agreed was a reasonable time in order for them to make arrangements to perform this delivery condition, the giving of timeous notice of readiness by the buyers must be just as much a condition as was the shipment obligation of the sellers (p. 303 col 2). At p. 305 Col 2 Megaw LJ expressed disagreement with Diplock LJ's formulation of the test in Hongkong Fir insofar as it suggested that a term could only be a condition if it deprived the other party of substantially the whole benefit of the contract, drawing attention to Bowes v. Shand (1877) 2 App. Cas. 455 and other cases in which it had been held that time was of the essence in commercial contracts such that breach gave rise to a right to repudiate irrespective of the gravity of the consequences of the breach.

- - - - 157. - -

In the House of Lords, Lord Wilberforce recited the buyers’ argument based on Diplock LJ’s analysis in Hongkong Fir that because breach of the notice of readinesss clause might have consequences which ranged from the trivial to the serious it was to be categorised as an innominate term. Lord Wilberforce said at p. 715D:

- - - - -

“Diplock L.J. then generalised this particular consequence into the analysis which has since become classical. The fundamental fallacy of the appellants’ argument lies in attempting to apply this analysis to a time clause such as the present in a mercantile contract which is totally different in character. As to such a clause there is only one kind of breach possible, namely, to be late, and the questions which have to be asked are, first, what importance have the parties expressly ascribed to this consequence and secondly, in the absence of expressed agreement, what consequence ought to be attached to it having regard to the contract as a whole.

- - - - -

The test suggested by the appellants was a different one. One must consider, they said, the breach actually committed and then decide whether that default would deprive the party not in default of substantially the whole benefit of the contract. They invoked even certain passages in the judgment of Diplock L.J. in the Hongkong Fir case [1962] 2 Q.B. 26 to support it. One may observe in the first place that the introduction of a test of this kind would be commercially most undesirable. It would expose the parties, after a breach of one, two, three, seven and other numbers of days to an argument whether this delay would have left time for the seller to provide the goods. It would make it, at the time, at least difficult, and sometimes impossible, for the supplier to know whether he could do so. It would fatally remove from a vital provision in the contract that certainty which is the most indispensable quality of mercantile contracts and lead to a large increase in arbitrations. It would confine the seller—perhaps after arbitration and reference through the courts—to a remedy in damages which might be extremely difficult to quantify. These are all serious objections in practice. But I am clear that the submission is unacceptable in law. The judgment of Diplock L.J. does not give any support and ought not to give any encouragement to any such proposition; for beyond doubt it recognises that it is open to the parties to agree that, as regards a particular obligation, any breach shall entitle the party not in default to treat the contract as repudiated. Indeed, if he were not doing so he would, in a passage which does not profess to be more than clarificatory, be discrediting a long and uniform series of cases—at least from Bowes v. Shand (1877) 2 App. Cas. 455 onwards which have been referred to by my noble and learned friend, Lord Roskill. It remains true, as Lord Roskill has pointed out in Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. (The Hansa Nord) [1976] Q.B. 44, that the courts should not be too ready to interpret contractual clauses as conditions. And I have myself commended, and continue to commend, the greater flexibility in the law of contracts to which Hongkong Fir points the way (Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (trading as H. E. Hansen-Tangen) [1976] 1 W.L.R. 989, 998). But I do not doubt that, in suitable cases, the courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that an obligation has the force of a condition, and that indeed they should usually do so in the case of time clauses in mercantile contracts. To such cases the “gravity of the breach” approach of the Hongkong Fir case [1962] 2 Q.B. 26 would be unsuitable. I need only add on this point that the word “expressly” used by Diplock L.J. at p. 70 of his judgment in Hongkong Fir should not be read as requiring the actual use of the word “condition”: any term or terms of the contract, which, fairly read, have the effect indicated, are sufficient. Lord Diplock himself has given recognition to this in this House: Photo Production Ltd. v. Securicor Transport Ltd [1980] AC. 827, 849. I therefore reject that part of the appellants’ argument which was based upon it, and I must disagree with the judgment of the learned trial judge in so far as he accepted it. I respectfully endorse, on the other hand, the full and learned treatment of this issue in the judgment of Megaw L.J. in the Court of Appeal.

- - - - -

I would add that the argument above applies equally to the use which the appellants endeavoured to make of certain observations in United Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C, 904, a case on which I do not need to comment on this occasion.

- - - - -

In conclusion, the statement of the law in Halsbury’s Laws of England, 4th ed., vol. 9 (1974), paras. 481—482, including the footnotes to paragraph 482 (generally approved in the House in the United Scientific Holdings case), appears to me to be correct, in particular in asserting (1) that the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties, and (2) that broadly speaking time will be considered of the essence in “mercantile” contracts—with footnote reference to authorities which I have mentioned.

- - - - -

The relevant clause falls squarely within these principles, and such authority as there is supports its status as a condition: see Bremer Handelsgesellschaft m.b.H. v. J. H. Rayner & Co. Ltd. [1978] 2 Lloyd’s Rep. 73 and see Turnbull (Peter) & Co. Pty. Ltd. v. Mundas Trading Co. (Australasia) Pty. Ltd [1954] 2 Lloyd’s Rep. 198. In this present context it is clearly essential that both buyer and seller (who may change roles in the next series of contracts, or even in the same chain of contracts) should know precisely what their obligations are, most especially because the ability of the seller to fulfil his obligation may well be totally dependent on punctual performance by the buyer.”

- - - - - - - - 158. - -

Lord Roskill endorsed the view of Megaw LJ that Diplock LJ’s categorisation in Hongkong Fir was not intended to change longstanding authority that where time was of the essence in a mercantile contract any breach would give rise to a right to terminate even if not depriving the innocent party of the whole benefit of the contract. In doing so he emphasised the importance of certainty in this passage at p. 725C-D:

- - - - -

“Parties to commercial transactions should be entitled to know their rights at once and should not, when possible, be required to wait upon events before those rights can be determined. Of course, in many cases of alleged frustration or of alleged repudiatory delay it may be necessary to await events upon the happening or non-happening of which rights may well crystallise. But your Lordships’ House has recently reiterated in a series of cases arising from the withdrawal of ships on time charter for non-payment of hire the need for certainty where punctual payment of hire is required and has held that the right to rescind automatically follows a breach of any such condition.”

- - - - - - - - 159. - -

In context, this is a clear statement that payment of hire is a condition, although of course the point was not in issue in the case. Lord Roskill does not identify the recent series of House of Lords cases which he regarded as to that effect. They are likely to include The Laconia, and The Chikuma and perhaps albeit less recent The Petrofina. In each of those cases considerations of commercial certainty were addressed to whether the withdrawal clause should be given full and stringent effect in accordance with its terms, rather than for the purposes of any analysis of whether the term was a condition for the purposes of repudiation at common law.

- - - - 160. - -

Lord Roskill drew attention to the decision of the House of Lords in Bremer Handelsgesellschaft m.b.h v Vanden Avenne-Izigem P.V.B.A [1978] 2 Lloyd’s Rep 109 in which clause 22 of the contract had been held to be a condition but clause 21 not to be. He went on at p. 727E:

- - - - -

“In short, while recognising the modern approach and not being over-ready to construe terms as conditions unless the contract clearly requires the court so to do, none the less the basic principles of construction for determining whether or not a particular term is a condition remain as before, always bearing in mind on the one hand the need for certainty and on the other the desirability of not, when legitimate, allowing rescission where the breach complained of is highly technical and where damages would clearly be an adequate remedy. It is therefore in my opinion wrong to use the language employed by Diplock L.J. in the Hongkong Fir case [1962] 2 Q.B. 26 as directed to the determination of the question which terms of a particular contract are conditions and which are only innominate terms. I respectfully agree with what Megaw L.J. said in the passage in his judgment in the instant case.”

- - - - - - - - 161. - -

It is to be noted that the balance between the need for certainty and the undesirability of treating trivial breaches as carrying the consequences of breaches of condition requires a more nuanced approach where there is a contractual termination clause. In such circumstances the desideratum of certainty may be fulfilled by the contractual right to put an end to the future performance obligations without the full common law consequences of repudiation attaching. This was not a matter which fell to be considered on the facts of that case.

- - - - 162. - -

At pp. 728H-729D Lord Roskill said

- - - - -

“In reply to this part of Mr. Buckley’s argument Mr. Staughton drew your Lordships’ attention to Halsbury’s Laws of England 4th ed., vol. 9 (1974), paras. 481 and 482. He was able to show that the penultimate full paragraph in paragraph 481 had been expressly approved by no less than three of your Lordships in the United Scientific Holdings case [1978] A.C. 904, by Viscount Dilhorne at p. 937, Lord Simon of Glaisdale at pp. 941 and 944, and by Lord Fraser of Tullybelton at p. 958, while Lord Salmon at p. 950 stated the law in virtually identical terms though without an express reference to this particular passage in Halsbury. The passage in question reads:

- - - -

“The modern law, in the case of contracts of all types, may be summarised as follows. Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; or (3) a party who has been subjected to unreasonable delay gives notice to the party in default making time of the essence.”

- - - - - -

The relevant passage in para. 482 reads:

- - - -

“Apart from express agreement or notice making time of the essence, the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties. Broadly speaking, time will be considered of the essence in ‘mercantile’ contracts and in other cases where the nature of the contract or of the subject matter or the circumstances of the case require precise compliance.”

- - - -

A footnote, no. 3, refers among other cases to Reuter v. Sala, 4 C.P.D. 239 and to Bowes v. Shand 2 App. Cas. 455. My Lords, I agree with Mr. Staughton that the express approval of the passage in paragraph 481 cannot be taken as involving implied disapproval of the passage I have just quoted from paragraph 482.”

- - - - - - - - 163. - -

At p729E-H Lord Roskill said:

- - - - -

“My Lords, I venture to doubt whether much help is necessarily to be derived in determining whether a particular term is to be construed as a condition or as an innominate term by attaching a particular label to the contract. Plainly there are terms in a mercantile contract, as your Lordships’ House pointed out in Bremer Handelsgesellschaft m.b.H. v. Vanden Avenne-Izegem P.V.B.A. [1978] 2 Lloyd’s Rep. 109, which are not to be considered as conditions. But the need for certainty in mercantile contracts is often of great importance and sometimes may well be a determining factor in deciding the true construction of a particular term in such a contract.

- - - - -

To my mind the most important single factor in favour of Mr. Staughton’s submission is that until the requirement of the 15-day consecutive notice was fulfilled, the respondents could not nominate the “one Gulf port” as the loading port, which under the instant contract it was their sole right to do. I agree with Mr. Staughton that in a mercantile contract when a term has to be performed by one party as a condition precedent to the ability of the other party to perform another term, especially an essential term such as the nomination of a single loading port, the term as to time for the performance of the former obligation will in general fall to be treated as a condition. Until the 15 consecutive days’ notice had been given, the respondents could not know for certain which loading port they should nominate so as to ensure that the contract goods would be available for loading on the ship’s arrival at that port before the end of the shipment period.”

- - - - - - - - 164. - -

Lord Scarman agreed with Lord Wilberforce and Lord Roskill that the term was a condition and said at p 718C-E:

- - - - -

“The difficulty in the present case is, as Mr Buckley’s excellent argument for the appellants revealed, to determine what is the true construction of the completed clause 7 of GAFTA form 119, which the parties incorporated in their contract. After some hesitation, I have concluded that the clause was intended as a term, the buyer’s performance of which was the necessary condition to performance by the seller of his obligations. The contract, when made, was, to use the idiom of Diplock LJ. [1962] 2 Q.B. 26, 65 and Demosthenes (Oratt. Attici, Reiske 867.11), “synallagmatic,” i.e. a contract of mutual engagements to be performed in the future, or, in the more familiar English/Latin idiom, an “executory” contract. The seller needed sufficient notice to enable him to choose the loading port: the parties were agreed that the notice to be given him was 15 days: this was a mercantile contract in which the parties required to know where they stood not merely later with hindsight but at once as events occurred. Because it makes commercial sense to treat the clause in the context and circumstances of this contract as a condition to be performed before the seller takes his steps to comply with the bargain, I would hold it to be not an innominate term but a condition.”

- - - - - - - - 165. - -

Lord Lowry said at p. 719E-720D:

- - - - -

“The second general point which I desire to mention concerns stipulations as to time in mercantile contracts, in regard to which it has been said that, broadly speaking, time will be considered to be of the essence. To treat time limits thus means treating them as conditions, and he who would do so must pay respect to the principle enunciated by Roskill L.J. in Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. [1976] Q.B. 44, 71A, that contracts are made to be performed and not to be avoided. The treatment of time limits as conditions in mercantile contracts does not appear to me to be justifiable by any presumption of fact or rule of law, but rather to be a practical expedient founded on and dictated by the experience of businessmen, just the kind of thing which Bowen L.J. could have had in mind when framing his classic observations on the implied term in The Moorcock (1889) 14 P.D. 64, 68:

- - - -

“Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side: and I believe if one were to take all the cases, and they are many, of implied warranties of covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances. Now what did each party in a case like this know? For if we are examining into their presumed intention we must examine into their minds as to what the transaction was.”

- - - -

This passage has stood the test of time and I commend it to all lawyers who undertake to advise their clients on mercantile affairs.

- - - - -

In order to identify an implied term (concerning which both parties to the contract, being men of business, would say, “of course; it goes without saying") one must construe the contract in the light of the surrounding circumstances and, to understand how that is done, we cannot do better than read the passage from Lord Wilberforce’s speech in the Reardon Smith case [1976] 1 W.L.R. 989, 995E—997C to which my noble and learned friend, Lord Scarman, has already referred your Lordships.”

- - - - - - - - 166. - -

I emphasise three further aspects of the decision. First, both Lord Wilberforce and Lord Roskill recognised that the court should not be too ready to treat terms as conditions unless the terms of the contract clearly indicated such an intention. Secondly, Bunge v Tradax was a case in which the term in question carried a dependent term: performance of the nomination by the buyers was necessary in order to enable the sellers to fulfil their obligation to nominate the loading port and ship the goods. It was therefore an example of a case in which performance of the relevant term by one party was a condition precedent to the ability of the other party to perform another term which was itself a condition. This was treated by Megaw LJ and Lords Wilberforce, Scarman and Roskill as an important feature of the case. That is not a feature of the term requiring payment of hire in the present case. That this is an important and potentially critical distinction is illustrated by Universal Bulk Carriers Ltd v Andre et Cie [2001] 2 Lloyd’s Rep 65, especially per Clarke LJ as he then was at paragraphs [26]-[32].

- - - - 167. - -

Thirdly, the endorsement by Lords Roskill and Wilberforce of the passage in paragraph 482 of Vol 9 of the 4th edition of Halsbury’s Laws, to the effect that “broadly speaking” time is of the essence in commercial contracts, requires further comment. The cases footnoted in that paragraph in support of the proposition were Reuter v Sala, Bowes v Shand and the other authorities considered by Megaw LJ at [1980] 1 Lloyds Rep at pp. 306-7. All were concerned with contractual obligations other than an obligation to make payment, as was, of course Bunge v Tradax itself. There is no such presumption in respect of terms providing for payment in commercial contracts, in respect of which generally speaking time is not of the essence unless a contrary intention clearly appears from the terms of the contract, or the surrounding circumstances, as exemplified by s. 10 of the Sale of Goods Act 1979. The position had recently been analysed by the House of Lords in United Scientific Holdings v Burnley Borough Council [1978] AC 904, in which it was held that the time for performance of steps under a rent review clause was not of the essence. Lord Diplock said at p. 924C-E:

- - - - -

“I shall have to examine rather more closely what are the legal consequences of “time being of the essence” and time not being of the essence; but I do not think that the question of principle involved in these appeals can be solved by classifying the contract of tenancy as being of a commercial character. In some stipulations in commercial contracts as to the time when something must be done by one of the parties or some event must occur, time is of the essence; in others it is not. In commercial contracts for the sale of goods prima facie a stipulated time of delivery is of the essence, but prima facie a stipulated time of payment is not (Sale of Goods Act 1893, section 10 (1)); in a charterparty a stipulated time of payment of hire is of the essence. Moreover a contract of tenancy of business premises would not appear to be more of a commercial character than a contract for sale of those premises. Nevertheless, the latter provides a classic example of a contract in which stipulations as to the time when the various steps to complete the purchase are to be taken are not regarded as of the essence of the contract.”

- - - - - - - - 168. - -

He went on to explain the historical difference in approach of Courts of common law and equity prior to the Judicature Act 1873 which gave preference to the rules of equity. In relation to the latter he summarised the position at p. 927C-E

- - - - -

“My Lords, the rules of equity, to the extent that the Court of Chancery had developed them up to 1873 as a system distinct from rules of common law, did not regard stipulations in contracts as to the time by which various steps should be taken by the parties as being of the essence of the contract unless the express words of the contract, the nature of its subject matter or the surrounding circumstances made it inequitable not to treat the failure of one party to comply exactly with the stipulation as relieving the other party from the duty to perform his obligations under the contract. The Court of Chancery had reached this position in relation to contracts for the sale of land by the extension by Lord Eldon L.C. of the earlier doctrine that a stipulation as to the time of repayment by the mortgagor under a legal mortgage was not of the essence of the contract so as to entitle the mortgagee to refuse to reconvey the property if payment with interest was tendered after the stipulated date was passed: Seton v. Slade (1802) 7 Ves. Jun. 265.”

- - - - - - - - 169. - -

As to the common law, at p. 925G he pointed out that it had been established in Martindale v Smith (1841) 1 QB 389 and embodied in the Sale of Goods Act 1893 that the time of payment in a contract for the sale of goods is not of the essence unless made so by an express term. He summarised the common law position at p. 928A-C;

- - - - -

“My Lords, I will not take up time in repeating here what I myself said in the Hongkong Fir case, except to point out that by 1873:

- - - (1) - -

Stipulations as to the time at which a party was to perform a promise on his part were among the contractual stipulations which were not regarded as “conditions precedent” if his failure to perform that promise punctually did not deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract;

- - - - (2) - -

When the delay by one party in performing a particular promise punctually had become so prolonged as to deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract it did discharge that other party from the obligation to continue to perform any of his own promises which as yet were unperformed;”

- - - - - - - - - 170. - -

Having drawn attention to particular considerations involving contracts for the sale of land and options, he concluded that a stipulation as to time in a rent review clause was no different from any other term in a synallagmatic contract where the obligation arises upon the occurrence of a described event and concluded at p. 930G.

- - - - -

“So upon the question of principle which these two appeals were brought to settle, I would hold that in the absence of any contra-indications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances the presumption is that the time-table specified in a rent review clause for completion of the various steps for determining the rent payable in respect of the period following the review date is not of the essence of the contract.”

- - - - - - - - 171. - -

The principle that stipulations as to time of payment are not generally to be regarded as of the essence in commercial contracts unless a contrary intention appears from the contract or the surrounding circumstances has been judicially restated on a number of occasions: see for example per Christopher Clarke J, as he then was, in Dalkia Utilities Services Plc v Celltech International Ltd [2006] 1 Lloyd’s Rep 599 at paragraphs [130]-[131]. It is reflected in the current edition of Chitty on Contracts at paragraph 12-037 and Halsbury’s Laws Vol 22 at paragraph 502.

- - - - 172. - -

In Stocznia Gdanska SA v Latvian Shipping Co & others [2002] 2 Lloyd’s Rep 436 the Court was concerned with a shipbuilder’s right to rescind and claim damages for the failure of the buyer to pay instalments for six ships being built at the yard. The contracts provided a 21 day grace period, following which there was a contractual right on the part of the yard to rescind. The relevant aspect of the decision for present purposes is that addressing the buyer’s argument that the failure to pay the keel laying instalment on the first contract was not repudiatory, such that the contractual right of rescission did not carry with it an entitlement to damages. Rix LJ, giving the leading judgment, held at paragraphs [74]-[76] that the buyer’s breach was a renunciation whether or not the payment provision was a condition or innominate term, but went on, obiter, to conclude that the payment term was a condition. He said:

- - - - “77. - -

Mr. Glennie pointed out that time for payment under a commercial contract is not normally of the essence, i.e. that time for payment is not normally a condition of such a contract: see for instance s.l0 of the Sale of Goods Act, 1979. That is true as far as it goes: see Bunge Corporation v. Tradax Export S.A., [1981] 2 Lloyd’s Rep. 1; [1981] 1 W.L.R. 711.

- - - -

……….

- - - - - 79. - -

Moreover, The Georgios C is in my judgment of little assistance. It may be the case that in a withdrawal clause construed to mean “and for so long as default continues” the clause itself does not amount to a condition and thus the breach of non payment does not ipso facto amount to a repudiation. Since the clause only permitted withdrawal if the default was still continuing at the time of withdrawal, any remarks on the subject were in any event necessarily obiter. Our clause, however, is different from that in The Georgios C, not because it did not permit late payment as a remedy preventing rescission, for it allowed a period of grace of 21 days (cl. 5.05 first paragraph), but because it stated that those 21 days were the limit of such period of grace. There was in fact no right of rescission immediately Latreefers failed to pay by the due date, but only upon default 21 days after the due date of payment. In a contract where a vessel is to be built with funds provided by the purchaser in stages, an instalment notice is to be given requiring payment within five banking days, and a further 21 days of grace are then allowed, I do not see why provision for what is then called default entitling rescission should not be regarded as setting a condition of the contract.

- - - - 80. - -

In any event, the jurisprudence regarding time charter withdrawal clauses does not end with The Georgios C, which was itself overruled in Mardorf Peach & Co. Ltd. v. Attica Sea Carriers Corporation of Liberia (The Laconia), [1977] 1 Lloyd’s Rep. 315; [1977] A.C. 850. In Antaios Compania Naviera S.A. a Salen Rederierna AB (The Antaios) [1984] 2 Lloyd’s Rep. 235; [1985] A.C. 191 the withdrawal clause under consideration operated “failing the punctual and regular payment of the hire or on any breach of this charter party”. The House of Lords held that “any breach” meant any repudiatory breach — “that is to say: a fundamental breach of an innominate term or a breach expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongly repudiated by the charterers” (per Lord Diplock at p. 238, col. 1; p. 200F). Although the point has not been decided and is perhaps controversial, there must be a good argument that it follows that the express right to withdraw in the case of unpunctual payment under such a clause is a condition of the contract, breach of which is in itself repudiatory.”

- - - - - - - - 173. - -

For reasons I have endeavoured to explain, I do not regard the overruling of The Georgios C on another point in The Laconia as denting the authority of what Donaldson J and Lord Denning said about payment of hire not being a condition; nor is there to my mind anything in The Antaios which supports the proposition that payment of hire is a condition. I do not derive any particular assistance from the conclusion that the instalment payment in the shipbuilding contract in that case was a condition. The position of a yard under such a contract is very different to that of a shipowner under a time charter. In the latter case the withdrawal clause leaves the owner free to employ his vessel profitably elsewhere and puts an end to any loss continuing to be caused to the owner resulting from the termination, other than the loss of bargain which crystallises on termination. By contrast a shipbuilder exercising a right to terminate for default in payment by his buyer is left with an unfinished vessel in his yard whose presence will cause continuing damage. It is easy to see why in such circumstances the shipbuilder and buyer might be thought to have intended that the termination should not merely put an end to future obligations but oblige the buyer to pay for the losses flowing from the termination.

- - - - 174. - -

Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] 1 Lloyds Rep 461 was a shipbuilding case in which buyers invoked a contractual right to terminate for delay by the yard in completion of three vessels and the question arose whether they were entitled to damages for loss of bargain. The Court of Appeal held that they were. The delay in that case was sufficient to be repudiatory or renunciatory if the term was an innominate term, such that the question whether it was a condition was not in issue. The argument for the buyers was that the contractual termination provision, clause 10, displaced the common law right to treat the contract as repudiated and/or was a complete code regulating rights flowing from the breach so as to excluded liability for the breach. The decision is not therefore directly in point. Nevertheless Moore-Bick LJ, who gave the leading judgment, made various statements which in The Astra Flaux J considered provided support for his conclusion that non payment of hire in a time charter is a breach of condition. Moore-Bick LJ said:

- - - - -

“The nature of the contract

- - - - 12. - -

The contract in the present case is one for the sale of future goods, in this case a vessel, to be constructed by the seller (the yard) and delivered to the buyer (Gearbulk) by an agreed date. It contains many detailed provisions relating to the specification and performance of the vessel, as well as other matters. In relation to delay in delivery and deficiencies in speed, fuel consumption and deadweight capacity it provided for the payment of liquidated damages by the yard and, if the delay or any of the deficiencies exceeded a certain level, ultimately gave Gearbulk a right to terminate the contract. The contract also gave the yard a right to terminate it if Gearbulk failed to pay an instalment of the price when it became due.”

- - - -

………..

- - - - - “14. - -

It is inherent in the nature of a legally binding contract that each party expects to obtain the benefit of the bargain into which he has entered or, if the contract is not performed, a right to recover compensation in the form of damages for the loss of that benefit. Accordingly, in a case where one party’s breach is such as, in the words of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] 2 Lloyd’s Rep 478: [1962] 2 QB 26, to deprive the other of substantially the whole benefit which it was intended that he should obtain from the contract, the common law recognises the right of the injured party to treat the contract as discharged and to recover damages for the loss of the bargain. Such a breach is commonly described as “going to the root of the contract”. That is all trite law, but it provides the underpinning, should it be required, for Mr Boyd QC’s submission that parties to a contract of this kind, or indeed to any contract, enter into negotiations in the expectation that if one of them commits a breach which goes to the root of the contract in the sense just described, the other will be entitled to recover damages for the loss of his bargain. The parties may, of course, agree to depart from that position, but that is the point from which they start.

- - - - 15. - -

Whether a breach is sufficiently serious to go to the root of the contract depends on the terms of the contract and the nature of the breach, but it is open to the parties to agree that the breach of a particular term, however slight, is to be treated as having that effect and shall therefore entitle the other to treat the contract as repudiated. Different words have been used to express that intention. The use of the word “condition” will usually (though not always — see Wickman Machine Tool Sales v Schuler AG [1973] 2 Lloyd’s Rep 53; [1974] AC 235) be sufficient, but many other forms of wording can be found. Sometimes the consequences of a breach are spelled out and sometimes they are not; in each case it is necessary to construe the contract as a whole to ascertain what the parties intended.

- - - -

…………

- - - - - “20. - -

In my view Mr Dunning’s submission fails properly to recognise the true nature of the contract. The primary purpose of article 10 in the present case is to provide an agreed measure of compensation for breaches of contract by way of delay in delivery and deficiencies in capacity and performance which, although important, do not go to the root of the contract. For these the parties have agreed the payment of liquidated damages which are to be deducted from the final instalment of the price and to that extent their agreement displaces the general law, at least as regards the measure of damages recoverable for a breach of that kind. However, they have also agreed that there comes a point at which the delay or deficiency is so serious that it should entitle Gearbulk to terminate the contract. In my view they must be taken to have agreed that at that point the breach is to be treated as going to the root of the contract. In those circumstances the right to terminate the contract cannot sensibly be understood as anything other than embodying the parties’ agreement that Gearbulk has the right to treat the contract as repudiated, with (subject to Mr Dunning’s alternative argument) the usual consequences. The same holds true in relation to the yard’s right to terminate the contract under article 5.7. Although the parties may have agreed to exclude, in whole or in part, Gearbulk’s right to recover damages for a repudiatory breach on the part of the yard, I am unable to accept that they intended to create by their contract a situation which differed in its effect from that which would arise on the acceptance of a repudiation under the general law. Article 5.9 and article 10 simply identify the circumstances in which one or other of the parties is entitled to treat the contract as discharged by the other’s breach. In para 88 of his judgment in Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436 Rix LJ expressed the view that where contractual and common law rights overlap it would be too harsh to regard the use of a contractual mechanism of termination as ousting the common law mechanism, at any rate against a background of an express reservation of rights. In this case I would go further. In my view it is wrong to treat the right to terminate in accordance with the terms of the contract as different in substance from the right to treat the contract as discharged by reason of repudiation at common law. In those cases where the contract gives a right of termination they are in effect one and the same.”

- - - - - - - - 175. - -

No doubt what Moore-Bick LJ meant by “those cases” were the factual circumstances triggering the clause in the contracts before him. I apprehend that he was not intending to set out a general rule that whenever a contract contains a termination clause, the clause is to be treated as equivalent to a right to accept a repudiatory breach at common law, a proposition which would be inconsistent with the very existence of options to cancel.

- - - - 176. - -

I find nothing in this decision or reasoning which advances the current debate. As Flaux J recognised at paragraph [99] of The Astra there are important differences between the shipbuilding contract in that case and the contractual termination framework within it, and right of withdrawal for non payment of hire in a time charter. This decision seems to me to be no more than a conventional application of the principle in Financings v Baldock that the exercise of a contractual right of termination will prima facie also be treated as an acceptance of repudiatory breach if and to the extent there has been such a breach unless the language of the clause and the contract dictates otherwise.

- - - -

The language of the charterparties

- - - - - 177. - -

Clause 77 of the SPAR Vessel charters, which permits GCS to cancel if the vessel is off hire for more than 60 days, affords an example of these owners and charterers agreeing an option to cancel. Off hire events are not confined to breaches of contract by Spar, although such events will commonly be breaches. It is common ground that clause 77 is directed only to future obligations: if it is triggered by the vessel being off-hire for more than 60 days and GCS elects to terminate the charterparty, both parties are relieved from further performance; but GCS does not thereby gain a right to damages for losses flowing from the termination. If GCS were to lose the balance of a profitable charter on a rising market, it would have no claim against Spar unless Spar’s conduct was a repudiation or renunciation permitting termination apart from the clause.

- - - - 178. - -

This suggests that there is nothing inherent in the particular relationship between owners and charterers created by a time charter which is inimical to an option to cancel, and that it is a form of termination provision not only known to the law but within the particular contemplation of these contracting parties.

- - - - 179. - -

Both Mr Phillips and Mr Coburn sought to gain assistance from the words in the clause “Failing the punctual payment of hire, or any fundamental breach whatsoever of this Charter Party.” Mr Phillips’ suggestion that “whatsoever” links the two halves of the clause so as to treat punctual payment of hire as part of a genus to which the two halves of the clause belongs seem to me to put more weight on the word than it will bear. It is merely a word of emphasis governing the word “any”, emphasis which is understandable since in the previous NYPE form “any” had been held not to mean any. Moreover if the new wording introduced into the 1993 NYPE form was consciously intended to reflect The Antaios, including Lord Diplock’s terminology used there and in Photo Productions and The Afovos, it is arguable that fundamental breach is not part of a genus to which breach of condition belongs, being a repudiatory breach of an innominate term in contradistinction to a breach of condition. This may be reading too much into the language, and was not a point advanced in argument before me, which proceeded on both sides on the premise that the second half of the clause applied to repudiatory breaches including breaches of conditions. I do not think that the position is affected by whether fundamental breach means a repudiatory breach, as was held to be the meaning of any breach in the 1948 form in The Antaios, or is more narrowly confined to breach of an innominate term so as to exclude breach of condition. As Mr Coburn pointed out, there is no use of the word “other” in the second half of the clause, or anything else directly linking the two halves to a single genus. There is simply no language connecting the two halves of the clause.

- - - - 180. - -

I was similarly unpersuaded that the saving “without prejudice to any claims they (the Owners) may otherwise have on the Charterers” assisted the debate although both parties invoked the words in support of their contentions. Those words make clear that accrued rights to debts or damages which have already accrued at the time of termination are not affected; that casts no light on whether the right of termination is to take effect only as a release from future performance as an option to cancel or is a recognition of breach of a condition sounding in damages flowing from the termination itself.

- - - - 181. - -

I also attach no significance to the additional remedy introduced into the 1993 NYPE form which has no counterpart in the common law, enabling Owners to withdraw the vessel temporarily. Had this been a bespoke clause with no history I might have regarded that as an indication that the parties intended the clause to affect future performance only, without affecting such common law rights as would exist but for the clause. But the history of withdrawal clauses in time charters generally, and the previous NYPE form, suggests that this was simply intended as an additional remedy and could not by a side wind change the effect of a clause providing for withdrawal simpliciter.

- - - - 182. - -

Mr Phillips attached particular significance to the so called anti-technicality provisions of clause 11(b) and argued that they were to be treated as an indication that time was intended to be made of the essence by a three day period of grace following a notice. I cannot accept that such was their intention. Anti-technicality clauses of this kind arose against the background of the strict construction of withdrawal clauses and the risks of drastic consequences for charterers acting in good faith from errors in the banking system exemplified by the cases in the 1970s and 1980s. That it was the intention of clause 11(b) merely to mitigate these risks is apparent from the fact that its wording makes it applicable where the failure to make payment is due to oversight, negligence, errors and omissions on the part of the Charterers or their bankers. It is doubtful whether that provision would prevent owners exercising the right to withdraw immediately if charterers simply decided that they were unwilling to pay until served with a notice.

- - - - 183. - -

Moreover all that the anti-technicality provision does is to require a notice, after hire has fallen due and remains unpaid, followed by a further period of grace, as a condition which must be fulfilled, at least in some circumstances, before the right of withdrawal may be exercised. It is directed solely to the circumstances in which the contractual right arises; it can say nothing about what rights arise apart from the contractual right of termination conferred by the clause.

- - - - 184. - -

There are in any event conceptual difficulties with the analogy between anti-technicality clauses and notices making time of the essence. There is an important distinction between, on the one hand, a provision in the contract that time is to be of the essence in relation to a particular term, by which the parties accord it the status of a condition, and on the other, a notice making time of the essence. The former makes the failure to comply a breach of condition when it occurs. The latter presupposes that the breach is of an innominate term, not a breach of condition, when it occurs, and is not at that stage repudiatory; it seeks to put the innocent party in a position to treat the continuing breach as repudiatory or renunciatory. A notice to make time of the essence does not convert an innominate term into a condition. Failure to make payment before the expiry of the notice period is not a breach of condition; on the contrary it is merely of evidential significance in relation to whether the breach of the innominate payment term is thereafter to be treated as repudiatory or renunciatory. The principles were summarised by Christopher Clarke J in Dalkia v Celtech at paragraph 131 as follows:

- - - - “131. - -

In Re Olympia & York Canary Wharf Ltd (No 2) [1993] BCC 159 Morritt J, as he then was, considered the authorities relating to the making of time of the essence. From that analysis and other authority I derive the following propositions:

- - - (a) - -

Equity, before the Judicature Acts, insisted that prima facie time for payment was not essential. But equity’s patience was exhaustible. It would allow the contract to be treated as repudiated if the party in default had been given the opportunity to mend his ways by the giving of a notice to comply within a reasonable time. Whilst this is described as making time of the essence in reality the notice is the means of bringing to an end equity’s interference with the contract: Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1;

- - - - (b) - -

Such a notice, which may be given in respect of any species of term, may not be served until the time for performance has expired; but it may be served as soon as that time arrives;

- - - - (c) - -

Such a notice must state clearly what the other party is required to do and the consequence if he fails ie that the contract may he terminated: Afovos Shipping Co SA v R Pagnan and Flli (The Afovos) [1982] 1 Lloyd’s Rep 562, 565 col 2; [1982] 1 WLR 848, 854C;

- - - - (d) - -

If the defaulting party fails to perform after service of such a notice, the failure is not automatically a repudiation of the contract, giving rise to a right to terminate. The breach must go to the root of the contract;

- - - - (e) - -

The notice operates as evidence of the date by which the promisee considers it reasonable to require the contract to be performed, failure to perform by which is evidence of an intention not to perform: see Lord Simon of Glaisdale in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, 946E—947A; Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC) para 147.”

- - - - - - - - - 185. - -

What then is the position on owners’ argument once hire has fallen due but before a notice has been given, or before expiry of the three days from the giving of a notice? Is the non payment a breach of condition? If so, the anti-technicality notice can have no bearing on the question. Is it a breach of an innominate term? If so, the term does not change its status simply by the giving of a notice. Or is it no breach at all, such that there is only ever a default if and when a notice has been given and three days have elapsed? That would be inconsistent with the primary obligation being expressed to be the payment of hire 15 days in advance.

- - - - 186. - -

For all these reasons I do not consider that the anti-technicality provision in clause 11(b) assists owners’ argument. It merely indicates that the strictness of the right to withdraw under the clause is to be tempered to provide for mishaps in circumstances in which the clause will have potentially drastic consequences for charterers in a rising market. That does not dictate that it should be regarded as more than an option to cancel. In Financings v Baldock there was a 10 day grace period before the contractual right of termination arose. That was not regarded as something which turned the payment obligation into a condition.

- - - - 187. - -

There is one aspect of the language of the clause to which I do attach particular significance. It is that what the clause seeks to identify as the consequence of the triggering event is a remedy in the form of a liberty to withdraw the vessel from service. It does not say that payment of hire is to be treated as a condition, or that the time of payment is to be treated as of the essence. It does not purport to confer a right to damages where such a right would not otherwise exist. Its language is more naturally indicative of an option to cancel directed solely to future performance, not as something intended to impose new liabilities.

- - - -

Analysis and conclusions

- - - - - 188. - -

As is apparent from my review of the authorities, those which expressly address or mention the question whether payment of hire in time charters is a condition do not speak with one voice. That payment of hire is not a condition is supported by the dicta of Donaldson J and Lord Denning in The Georgios C, in passages not affected by the overruling of the decision in The Laconia; the judgment of Brandon J in The Brimnes and its implicit approval by a strong Court of Appeal (Edmund Davies, Megaw, Cairns LLJ) in that case; the dicta of Mocatta J in the Agios Giorgis; and the dicta of Lord Sumption and Lord Mance in The Kos, together with the dicta of Andrew Smith J and the concession by Eder J as counsel in that case. On the other hand authority that payment of hire is to be treated as a condition is to be found in the dicta of Lord Diplock in United Scientific Holdings, The Afovos and The Scaptrade; the dicta of Lord Roskill in Bunge v Tradax; the concession by Lord Steyn as counsel in the Scaptrade; the dicta of Rix LJ in Stocznia Gdanska v Latvia (although not expressed as a concluded view); and not least the reasoned judgment of Flaux J in The Astra.

- - - - 189. - -

Lord Diplock said in The Antaios at p. 204B that dicta are of persuasive strength, depending upon the professional reputation of the judge who voiced them. In this case dicta come from judges on each side with great experience in this area of commercial law and practice, who command the very greatest respect. It would be invidious to seek to ascribe relative weight to the professional reputations of each of those identified. The solution to this issue is not to be found by a judicial game of cards, allocating to the authors of the views the status of colour cards or trumps so as to assess which is the stronger hand.

- - - - 190. - -

I start with the approach which I take to be supported by Financings v Baldock, that a contractual termination clause should be treated as an option to cancel which does not confer greater rights to damages at common law than would exist apart from the clause unless there is clear language to that effect.

- - - - 191. - -

There is no such clear language in clause 11 or elsewhere in these charters. On the contrary, the language of clause 11, providing for a liberty to withdraw the vessel from service, addresses itself solely towards future performance. Save in relation to future performance the clause neither expands nor restricts the rights of the parties. It does not purport to confer a right to damages where none would otherwise exist, nor to remove a right to damages where such right would otherwise exist. In short it is neutral as to the common law rights of the parties apart from the clause.

- - - - 192. - -

A clause which merely provides a contractual remedy for default is not naturally to be interpreted as determining what remedies are available if the contractual remedy is not relied on. Moreover if it had been intended to introduce a provision to make clear that payment of hire was a condition, one would expect it to be framed by reference to the term requiring payment, stating that it was to be treated as a condition or that time of payment was to be of the essence, which was the formula used in the bareboat charter in Parbulk II A/S v Heritage Maritime Ltd SA (The Mahakan) [2012] 1 Lloyd’s Rep 87.

- - - - 193. - -

For reasons which I have endeavoured to explain, the existence of the anti-technicality provision in clause 11(b) does not detract from this analysis.

- - - - 194. - -

I therefore reject the submission that the effect of the withdrawal clause is to make payment of hire a condition. The critical question which arises is whether payment of hire would be treated as a condition in the absence of the withdrawal clause. A number of considerations suggest that it would not.

- - - - 195. - -

First, there is force in the point which formed part of the successful argument of Mr Robert Goff QC, as he then was, on behalf of charterers in The Brimnes, that provision for an express right of withdrawal for failure to pay hire tends to show that the obligation was not otherwise of such a character as to be a condition. The very inclusion of the contractual right of withdrawal for non payment of hire suggests that in its absence there would be no such right. Such a provision would be otiose if the owner had the right at common law to put an end to the contract for any default in payment of hire as a breach of condition. It is clear from Lord Diplock’s speech in The Afovos that he would have regarded the term as an innominate one in the absence of a withdrawal clause.

- - - - 196. - -

Secondly, there is the presumption that in mercantile contracts, stipulations as to the time of payment are not to be treated as conditions absent a contrary indication in the contract, of which there is none in these charters.

- - - - 197. - -

Thirdly, predicated breaches of the term may range from the trivial to the serious. Default in punctual payment may consist in being marginally late, by accident, causing no loss to owners or loss which is insignificant in the context of the long term charter as a whole. In this respect the payment term carries the hallmarks of an innominate term. Bunge v Tradax establishes that this is not determinative, but nor is it irrelevant. Absent considerations of commercial certainty which dictate a different result, the general approach should be that where predicated breaches of a term may have consequences ranging from the trivial to the serious, that is a strong indication that it is to be treated as an innominate term. This applies as much to a time charter as any other form of contract (see for example Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] AC 757 per Lord Wilberforce at p. 778F).

- - - - 198. - -

Fourthly I cannot conceive that in the absence of a contractual withdrawal clause, owners and charterers should be taken to have intended that a payment of hire a few minutes late would entitle the owners to throw up a five year charter. It would not satisfy the test for an implied term which Lord Lowry suggested in Bunge v Tradax as a useful guide. I do not regard that conclusion as put in doubt by what was said in The Petrofina, The Laconia, The Mihalios Xilas and other cases emphasising the importance to owners of punctual advance payment. Those are good reasons for giving a stringent interpretation to a contractual option to cancel where that is what the parties have bargained for in clear terms; they provide no warrant for supposing that the parties would have had such an intention if they had not contracted for a right of withdrawal in such circumstances. Although they may also colour the approach to the factual inquiry whether the default deprives the shipowner of substantially the whole benefit of the contract, and may justify setting the bar at which non payment is repudiatory or renunciatory at a lower level than would be the case in relation to payment obligations under contracts of a different nature, I cannot regard them as sufficient to justify any failure to pay hire punctually being treated as allowing owners to put an end to a long term time charter in the absence of express agreement.

- - - - 199. - -

Fifthly, I do not regard considerations of commercial certainty as pointing to a different conclusion. As Lord Roskill observed in Bunge v Tradax certainty is a desideratum which must be counterbalanced with the need not to impose liability for a trivial breach in undeserving cases.

- - - - 200. - -

Moreover a very considerable measure of certainty is conferred by the withdrawal clause itself as an option to cancel. There is no uncertainty over the ability to put an end to future performance. It is true that if payment of hire is an innominate term and the right to terminate only entitles owners to termination damages if the breach is repudiatory, the owners will not have absolute certainty in a fallen market in determining when the exact moment comes at which exercising the right will enable them to recover damages for the loss of bargain. But that is an uncertainty regularly faced by commercial parties whose contracts commonly contain innominate terms, and charterparties contain many such terms (for example as to seaworthiness). I see no reason why shipowners should be treated more favourably in this respect than others; owners of vessels are not unique in the commercial world in relying on prompt payment by their contractual counterparty to finance their performance of the contract.

- - - - 201. - -

In this context it is significant that until The Astra, Brandon J’s conclusion in The Brimnes on this point was generally accepted in the shipping community, as the editors of Time Charters 7th edn observe at paragraph 6.129, although the point was not regarded as free from controversy. In the 40 years since, owners and charterers have conducted business, and resolved disputes, on the footing that the payment of hire is not a condition, or at the very least may not be. The NYPE, Baltime and Shelltime forms of time charter have not been altered to make clear that payment of hire is a condition; nor so far as I am aware have any other standard time charterparty forms. Nor has there grown up any regular practice of including bespoke terms to that effect in time charters (cf the term that payment of hire should be of the essence in a bareboat charter in The Mahakan). Markets have not been on an uninterrupted rise throughout this period but have risen and fallen in cycles. There have been many disputes in arbitration in which the conduct of charterers has fallen to be examined to see whether failures to pay hire are sufficiently serious to be repudiatory or renunciatory. None of this suggests that the shipping community considers the desideratum of commercial certainty to be such as to require payment of hire to be treated as a condition.

- - - - 202. - -

In The Astra Flaux J gave four reasons for concluding that payment of hire was a condition. The first, at paragraph [109], is that because the withdrawal clause makes clear that there is a right to terminate for any failure to make punctual payment, it makes clear that any non payment is sufficiently serious to justify termination, which is a strong indication that it was intended that a failure to pay hire promptly would go to the root of the contract and thus that the provision was a condition. This is in essence an acceptance of the argument of counsel for the owners recorded at paragraph [39], that the logical corollary of Diplock LJ’s analysis of what constitutes a condition is that if the contract provides for a right to terminate, that is a very strong indication that the term in question is a condition. I have endeavoured to explain why I believe this turns the passage on its head. Moreover its reasoning is difficult to reconcile with Financings v Baldock (which it is not apparent from the report was cited to Flaux J). Once it is recognised that a clause providing for termination on any breach of a term, however trivial, may constitute an option to cancel, the fact that the clause is triggered by such a breach tells one nothing about whether the term breached is to be characterised as a condition.

- - - - 203. - -

Flaux J’s second reason, at paragraph [110], is that the general rule in mercantile contracts where there is a time provision requiring something to be done is that time is of the essence, subject to payment of the price in sale of goods which is not here relevant; and that the dicta in the House of Lords in The Petrofina, The Mihailis Xilas, United Scientific Holdings, Bunge v Tradax, and The Afovos all indicate that the obligation to pay hire punctually is such a provision where time is of the essence and hence a condition. As to this the presumption in commercial contracts is that stipulations as to time of payment are not of the essence in the absence of a clear indication to the contrary. The dicta in the cases about the owners’ commercial interest in prompt and punctual advance payment provide good reason for approaching a contractual option to terminate with the stringency which its unqualified terms require, but no reason additionally to treat the term as a condition conferring a right to terminate at common law with its different financial consequences: once the owner is able to invoke his option to cancel to put an end to future performance he is no longer obliged to fund the operation of the vessel for the benefit of the charterer. His interest in the prompt and punctual payment of hire for so long as he has to provide the services of the master and crew to the charterers disappears when he withdraws the vessel from service. Insofar as the dicta go beyond this and state in terms that payment of hire is a condition, as those of Lord Diplock and Lord Roskill undoubtedly do, they were not made after argument on the point and are counterbalanced by other judicial dicta and the decision of Brandon J in The Brimnes to the contrary.

- - - - 204. - -

Flaux J gave four reasons for declining to follow the The Brimnes. The first (paragraph [111]) was that in that case the charter contained no anti-technicality clause. That seems to me to afford no real ground of distinction. The clause in The Astra, clause 31, was in materially similar terms to clause 11(b) of the SPAR charters save that it provided two banking days grace. It too was expressed in terms which only covered accidental lateness. I have sought to explain why the anti-technicality clause does not in my view indicate that time was intended to be of the essence and drawn attention to the fact that the 10 day grace period in Financings v Baldock was not treated as having that effect. Flaux J’s second reason for not following The Brimnes (paragraph [114]) was that the decision is inconsistent with the dicta in the House of Lords to which he referred. That would be good reason if the dicta undermined the reasoning, but again for reasons I have sought to explain I do not believe they do so, and in any event the decision also has the support of other dicta at the highest level. Flaux J’s third reason (paragraph [114]) was that Brandon J relied heavily on the dicta of Donaldson J and Lord Denning in The Georgios C, which was subsequently overruled in The Laconia. It was, however, overruled on a different point, not that for which Brandon J treated it as authoritative support. Flaux J’s fourth reason is that the speeches in The Laconia falsified the argument on behalf of charterers by Mr Robert Goff QC, as he then was, in The Brimnes that “punctual” added nothing to “payment” so as not to afford a ground for distinguishing The Georgios C. I do not regard anything said by the House of Lords in The Laconia as undermining Mr Goff’s argument: the relevant passages served to reaffirm the considerable commercial importance of payment of hire to owners, which exists irrespective of a reference to punctuality in the clause. On the contrary, Mr Goff’s submission that there was no relevant distinction between the forms of wording was supported by what Lord Wright had said at p. 94 of The Petrofina in the passage I have quoted above.

- - - - 205. - -

The third of Flaux J’s reasons for concluding that payment of hire was a condition (at paragraph [115]) was the need for commercial certainty: if the right to withdraw the vessel for non payment left the owners with no remedy in damages on a falling market, save in cases where charterers’ conduct was repudiatory, that would leave owners in a position of uncertainty whether to soldier on with a recalcitrant charterer until such time as the owners were in a position to say that the charterers were in repudiatory breach. Insofar as having to “soldier on” is a disadvantage, it is no more than any commercial party faces as a result of the law that it is only breaches of innominate terms which are of a repudiatory character which allow a party to put an end to contractual obligations; whether that gives rise to uncertainty depends upon the application of settled law to common facts. I would endorse the view of the editor of Treitel on The Law of Contract 13th edn at paragraph 18-069 that the principal function of both conditions and express contractual termination provisions is to ensure certainty so far as the right to terminate is concerned. That can be achieved by an option to cancel without conferring an unmerited right to damages.

- - - - 206. - -

Flaux J’s fourth reason for holding that payment of hire was a condition was that the conclusion was supported by the two shipbuilding cases, which, again for reasons I have endeavoured to explain, I do not view as having that effect.

- - - - 207. - -

For these reasons and with the greatest respect I have felt unable to follow the decision of Flaux J on this point in The Astra, and have concluded that payment of hire by GCS in accordance with clause 11 of these charters is not a condition.

- - - - - Issue 3: Was GCS’s conduct in relation to payment of hire a repudiation or renunciation? - - -

The law

- - - - - 208. - -

The principles are well established and may be summarised as follows:

- - - (1) - -

Conduct is repudiatory if it deprives the innocent party of substantially the whole of the benefit he is intended to receive as consideration for performance of his future obligations under the contract. Although different formulations or metaphors have been used, notably whether the breach goes to the root of the contract, these are merely different ways of expressing the “substantially the whole benefit” test: Hongkong Fir at pp. 66, 72; The Nanfri at pp. 778G-779D.

- - - - (2) - -

Conduct is renunciatory if it evinces an intention to commit a repudiatory breach, that is to say if it would lead a reasonable person to the conclusion that the party does not intend to perform his future obligations where the failure to perform such obligations when they fell due would be repudiatory: Universal Carriers v Citati at p. 436, The Afovos at p. 341 col 2.

- - - - (3) - -

Evincing an intention to perform but in a manner which is substantially inconsistent with the contractual terms is evincing an intention not to perform: Ross T Smyth & Co Ltd v T.D. Bailey, Son & Co [1940] 3 All ER 60, 72. Whether such conduct is renunciatory depends upon whether the threatened difference in performance is repudiatory. It is not here necessary to explore the position where the innocent party misappreciates the nature or scope of his obligations (see Woodar Investment Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 and Chilean Nitrate Sales Corporation v Marine Transportation Co Ltd (The Hermosa) [1982] 1 Lloyd’s Rep 570, 572-3).

- - - - (4) - -

An intention to perform connotes a willingness to perform, but willingness in this context does not mean a desire to perform despite an inability to do so. As Devlin J put it in Universal Carriers v Citati at p. 437, to say: “I would like to but I cannot” negatives intent just as much as “I will not.”

- - - - - 209. - -

It follows from these principles that conduct comprising a breach or breaches of obligations which have fallen due may be insufficient to be a repudiation but nevertheless be conduct which is a renunciation because it would lead the reasonable observer to conclude that there was an intention not to perform in the future, and the past and threatened future breaches taken together would be repudiatory. Such conduct is not infrequently referred to in the cases simply as a repudiation, but is more accurately described as a renunciation in the nomenclature I have adopted. The reason why a defaulting party commits an actual breach is generally irrelevant to whether it constitutes a breach, or whether the breach is a repudiation. But the reason may be highly relevant to what such breach would lead the reasonable observer to conclude about the defaulting party’s intentions in relation to future performance, and therefore to the issue of renunciation. Often the question whether conduct is a renunciation falls to be judged by reference to the defaulting party’s intention which is objectively evinced both by past breaches and by other words and conduct.

- - - -

The facts

- - - - - 210. - -

The position reached at time of withdrawal of the Vessels on 23 and 30 September 2011 can be summarised as follows:

- - - (1) - -

GCS had regularly failed to pay hire punctually since mid-April 2011, a period of over 5 months. Almost all payments on all three Vessels were unpaid when they fell due. Some were not paid at all, others only months after they fell due. In those months, only in July were instalments paid on time or within a few days of falling due.

- - - - (2) - -

For most of the period the arrears fluctuated between about US$1.5m and US$2.5m, and would have been up to US$1m more but for the exercise by Spar of its lien on sub-hire/sub-freights. If one takes a total of US$2m as a very rough average, this is broadly equivalent to about eight instalments over the three Vessels; individually the arrears of hire for the Vessels fluctuated between about one and four instalments.

- - - - (3) - -

GCS had made clear that non payment was due to cash flow difficulties caused by the fall in the market which rendered it unable to meet its hire obligations to all the owners of its chartered fleet. Since June it had repeatedly said that it expected cash injection from its parent which would enable it to make punctual payments and pay off the arrears. Despite such indications it continued to fail to make punctual payments on all three Vessels. It twice promised to pay off half the arrears by 31 August but failed to do so.

- - - - (4) - -

By the beginning of September GCS was emphasising its cash flow difficulties, providing no concrete payment proposal, and suggesting that it would merely pass on sub-hires when received, which in a market which had substantially fallen since the date of the charterparties was bound to amount to a significant shortfall on the hire due to Spar. It sought to excuse non payment of a SPAR DRACO instalment by saying that sub-charterers had not paid the sub-hire, suggesting that it would only (part) perform its hire obligations on each vessel if timeously paid the (insufficient) sub hire, an approach aptly described by Spar as hand to mouth.

- - - - (5) - -

At no stage did GCS provide any detail of what amounts were expected to be received from its parent, or when; or of how any such receipts would be allocated amongst competing creditor shipowners. It provided no explanation as to why its avowed expectations were unfulfilled, or why it was unable to fulfil its promise to pay off half the arrears by the end of August.

- - - - (6) - -

The only response from GCL to the request to fulfil its guarantee obligations was on 23 September 2011, when it indicated that the group was prioritising payment of bank interest over operational payments such as the hire due to Spar, and that “financial support will come” in October. This gave no explanation of how much financial support would come in October or when in that month. It made no concrete proposal for discharge of the liabilities and belittled the amount outstanding as a “relatively small sum”.

- - - - - 211. - -

This would have led an objective observer to conclude that GCS was unwilling, because it was unable, to make punctual payments of hire for the balance of the charter periods, or to pay off the arrears, unless and until the market rose again to above March 2010 levels (which might never occur); and that such defaults would likely be substantial, involving delays of payments measured in weeks or months and arrears of the order of US$2 million or more. The avowed expectation that the position would be remedied by capital and cash flow injection from GCL in October would properly have been discounted by a reasonable owner in Spar’s position in the light of the past history of broken promises and confounded “expectations”, and by the lack of any specific assurance from GCL or HNA of how much it would provide or when, or as to how GCS would allocate it between competing creditor shipowners. It is telling that GCS’ own characterisation, set out in its submissions in the arbitrations, was that “Charterers were willing to pay hire at the agreed rate, albeit not in advance due to the temporary cash flow problems and the internal restructuring”. The objective observer would not have treated such problems as “temporary” in the sense of short term: there was every indication that they would continue indefinitely.

- - - - 212. - -

In those circumstances GCS was objectively evincing an intention not to perform the charters in a way which deprived Spar of substantially their whole benefit.

- - - - 213. - -

Mr Coburn submitted that in a long term time charter, the question whether non payment of hire amounted to a repudiation was essentially a mathematical exercise in which the amount paid and its timing could be plotted on a graph against an equivalent timeline for regular and punctual payment; and that to determine whether the owners had been deprived of substantially the whole benefit of the charter, the gap between the two had to be compared with the total hire due for the whole charter period. So, he submitted by way of example, for a charterer to pay late for one month throughout the course of the charter would not be repudiatory. Looked at in this way, the benefit which Spar was intended to receive under the two five year charters was a total amount of hire of over US$30 million and under the three year charter a total of over US$18 million. Against this background falling into arrears by a few instalments constituting a small proportion of the total could not be said to be depriving Spar of substantially the whole benefit of the charters.

- - - - 214. - -

I am unable to accept this submission. There are here relevant the many judicial pronouncements as to the importance to owners of punctual payment of hire in advance to which I have referred, and an important further consideration. If the charterer pays not in advance, but in arrears, even in full, he is performing a substantially different bargain from that which is contained in the charterparty. In assessing repudiation stricto sensu, ie past breach, late payment or non payment of several instalments may well not be repudiatory of a long term charter if, and it will usually be a big if, it casts no doubt on the ability and willingness of the charterer to pay off the arrears promptly and perform prompt payment in full in the future. In those circumstances a mathematical comparison of the missed payments and the total hire over the course of the charter may be appropriate. Where, however, such conduct evinces an intention not to make regular and punctual payments in the future the position is different. Occasional and brief delays in payment will not be repudiatory, but where the hire is due semi monthly in advance, regular delays measured in weeks often will be, because in those circumstances performance is substantially different from what has been bargained for, which is a charterparty under which the owner is to meet his obligations from the hire which has already been provided. Mr Coburn suggested that if a charterer paid punctually one month in arrears, that could equally well be characterised as paying promptly throughout the currency of the charter save that the first month’s debt is not paid off until the end of the charter. Quite apart from the rule that a creditor may choose how to allocate payments to outstanding debts, the flaw in this approach is that the charterer is still treating the owner as obliged to perform when he is a month out of pocket for the expenses needed to perform throughout the period of the charter. However described, in substance the position is that throughout the whole of the charter the charterer is getting the services on credit, without paying interest, when the bargain is that owners should be funded in advance.

- - - - 215. - -

Accordingly I conclude that GCS had renounced the charterparties at the date of the termination notices, which are to be treated as an election to terminate the charters preserving Spar’s common law right to damages for loss of bargain arising out of such termination.

- - - - -

Issue 4: What is the correct principle for the assessment of damages?

- - - - 216. - -

The uncontroversial compensatory principle is that damages for breach of contract are intended to put the innocent party in the same financial position as if the contract had been performed. It may also be expressed as the claimant being entitled to the value in money of the contractual rights he has lost. See, for example Golden Strait Corpn v Nippon Kubisha Kaisha (The Golden Victory) [2007] 2 AC 353 per Lord Bingham at paragraph [9] and per Lord Scott at paragraphs [29]-[30].

- - - - 217. - -

Where a charterer wrongfully repudiates a time charter and there is an available market at the date of termination in which the owner may let the vessel on time charter for the unexpired term, on materially equivalent terms save as to hire, damages are to be assessed by reference to the difference between the charterparty rate of hire and the rate for such substitute charter, irrespective of what employment the owner chooses for the vessel. Such is the principle established in Koch Marine Inc. v D’Amica Societa di Navigazione ARL (The Elena D’Amico) [1980] 1 Lloyd’s Rep 75 (for the converse situation of an owner’s repudiation). So much was common ground.

- - - - 218. - -

It was also common ground that:

- - - (1) - -

at the date of the termination of the SPAR CAPELLA and SPAR VEGA charters in September 2011, there was no market for a substitute time charter for the minimum unexpired term of those charters, which will expire in December 2015;

- - - - (2) - -

there was throughout the period between September 2011 and today a market for time charters of the vessels for shorter periods, such that Spar would have been able, had they so chosen, to earn hire from time charter employment of the vessels for two or more successive charters; and

- - - - (3) - -

Spar had acted reasonably in its choice of employment for the vessels and had not failed to mitigate its loss; nevertheless with hindsight Spar was disappointed with the earnings of the vessels in the Navig8 pool; had they been in time charter employment, the earnings of the two vessels over the period between September 2011 and today would have been several million dollars greater.

- - - - - 219. - -

GCL submitted that in those circumstances Spar’s damages were to be calculated by reference to the market rate of hire obtainable under successive time charters, irrespective of the actual employment of the vessels. Spar contended that once it was established that there was no market for a time charter for the full unexpired term at the date of termination, the damages were to be measured by reference to the actual earnings of the vessels to date and projected actual earnings from now to expiry.

- - - - 220. - -

The starting point for the analysis is that where there is an available market for a replacement time charter, damages are to be assessed by reference to the market rate because the owner is able to replace his loss of bargain in specie. He can replace the broken charter with exactly what he bargained for by entering into a replacement charter for the unexpired term on materially equivalent terms save as to hire. He is not bound to do so. But if he does not, it is his independent decision not to replace exactly what he has lost which is treated as the cause of the financial consequences of that chosen course, rather than the charterer’s renunciation. As Robert Goff J put it in The Elena D’Amico, “the decision not to take advantage of the available market is the independent decision of the innocent party, independent of the wrongdoing which has taken place” (p. 89 col 1). So if the owner chooses not to take advantage of an available market to replace his lost bargain, any loss he suffers from market fluctuations is irrelevant. The charterer’s breach is treated merely as the trigger or occasion for such loss, not the cause of the loss in law. The contractual rights whose loss is caused by the breach are easily valued because the cost of replacing them is readily identifiable by reference to an available substitute charter.

- - - - 221. - -

Where at the date of termination there is no market available for a replacement charter for the full length of the unexpired term, there is no “available market”. This is because a time charter for a particular period reflects the appetite for risk which the owner and charterer are willing to take for that period. The agreed rate of hire is fixed for the period of the charter, during which market rates, whether on the spot market or for shorter term time charters, may vary up or down. Each party takes the risk that the hire locked in for the fixed term will prove more beneficial or burdensome than would have been the case had they fixed for a shorter period and been free, or required, to go into the market before the end of the fixed term. The length of the period for which each party is willing to take this risk is an essential element of the bargain. One element in determining the rate of hire will be a reflection of that risk. For these reasons the length of charters available in the market is an essential element in determining whether there is an available market for a replacement charter. A six month time charter represents a different bargain from a two year charter because of the different nature of the risk each party is willing to run. If the unexpired term is two years and there is no appetite in the market to fix for longer than six months, the owner cannot replace what he has lost in specie. Four successive six month charters are not a like for like replacement for a two year charter. His lost contractual rights cannot therefore be valued by reference to a market in which he can replace them.

- - - - 222. - -

Once this is recognised, it is apparent that if at the date of termination there is no available market for a substitute charter of the length of the unexpired term of the broken charter, there is no question of the owner breaking the chain of causation in his choice of employment for the vessel over the unexpired term. He cannot replace the bargain he has lost. He has to choose to mitigate his loss by employing the vessel in a different kind of revenue earning contract. It follows that absent any argument of failure to mitigate, the owner’s loss in such a situation is to be calculated by reference to his actual earnings, irrespective of the availability of a market for two or more successive charters for the unexpired term. The availability of a market for shorter charters does not constitute an available market in which he can replace his lost bargain. Shorter time charters are merely one of a number of forms of substitute employment by which the owner may mitigate the loss caused by the charterer’s breach in circumstances where there is no ability to replace the lost bargain with a like for like replacement.

- - - - 223. - -

A failure to replace the lost bargain with a series of successive shorter time charters does not break the chain of causation any more than a choice to employ the vessel on the spot market. Neither reflects an ability to replace the lost bargain in specie. Provided the course taken by the owner is reasonable, his actual earnings from the subsequent employment of the vessel in either manner, or a combination of the two, or any other combination of reasonable methods of earning revenue from the vessel, are legally caused by the charterer’s breach; and the amount by which actual earnings in such employment fall short of the hire which would have been earned under the broken charter is the measure of loss naturally arising out of the charterer’s breach.

- - - - 224. - -

In support of this conclusion one may posit an unexpired term of five years in which there is always an available market for a replacement charter of two years but no longer. If there were some rule that damages are to be measured by reference to a series of successive time charters, is it by reference to a two year charter, followed by a two year charter, followed by a one year charter? Or one year, then two, then two? Or by five successive one year charters? Or by some other combination? Mr Coburn submitted that it was the first of these: that the owner was bound to let the vessel on the longest time charters he could get (or that damages should be assessed on the hypothesis that he had, if he chose not to do so). It is difficult to see any rational basis on which this should be so. What if the market rate of hire at the date of termination for a two year charter seems too low to the owner for the risk being run of a market increase in rates? Why should he not let the vessel for five one year charters for the unexpired term? And if he does so, why should he not agree a variable rate tracking a market index, as Spar did for the first year, rather than fixing a flat rate? Where there is an available market for a five year charter at a fixed rate, the answer is that he can replace his lost bargain with a like for like replacement, the bargain with the charterer having been to lock in a fixed rate to the end of the five years. But in the absence of such an available market, when the charterer’s breach has forced the owner into a succession of charters which do not involve being locked in for the full period, I see no reason why any particular form or combination of shorter employments should be deemed to be that in which the vessel must be engaged, or the yardstick by which the owner’s loss is to be calculated if he chooses a reasonable alternative.

- - - - 225. - -

Mr Coburn argued that such an approach allowed the owner to speculate for his own reward but at the risk of the charterer. That is not so: if actual earnings are to be taken into account, the charterer will get the benefit of a favourable “speculation” by the owner. But in any event it is misleading to talk of the owner’s “speculation”. His need to make a decision as between different potential forms of employment for the vessel is the result of the charterer’s breach and the lack of an available market. It is subject to the duty to act reasonably to mitigate loss. Within that constraint, there is nothing unjust or contrary to principle in the charterer bearing the true loss which the owner has been caused by the charterer’s breach.

- - - - 226. - -

I am fortified in this conclusion by two decisions in this Court in which it has been held where at the date of charterers’ termination there was no available market for a substitute charter of the duration of the unexpired term, owners’ damages were to be assessed by reference to their actual earnings over the whole period, notwithstanding the later revival of an available market: Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd (The Kildare) [2011] 2 Lloyd’s Rep 360; Glory Wealth Shipping Pte v Korea Line Corporation (The Wren) [2011] 2 Lloyd’s Rep 370. Each is an application of the principles I have endeavoured to state.

- - - - 227. - -

GCL invoked support for its approach from the decision in Petrotrade Inc v Stinnes Handel GmbH [1995] 1 Lloyd’s Rep 142. In that case a seller claimed that a buyer had repudiated a contract for the sale of 10,000 tonnes of gasoline. Colman J held that the buyer had not repudiated the contract and dismissed the claim, but considered obiter what damages would have been recoverable had the buyer been in breach. There was an available market for the seller to resell the goods, but the market could not absorb a single sale of the entire amount immediately; the 10,000 tonnes could have been sold in separate parcels of between 1,000 and 3,000 tonnes over a period of two weeks. Colman J held that this constituted an available market by reference to which the seller’s damages would have fallen to be assessed, and the seller would not have been entitled to recover its actual losses from holding onto the cargo for longer in the belief that it would generate a greater return. I detect nothing in this decision which supports GCL’s case. A market for the sale of goods in separate instalments over a period of two weeks is not materially different in kind from a market for a single sale of the whole, which was the bargain the seller had lost. He could replace his lost bargain by resorting to that market, and his independent decision not to do so broke the chain of causation. By contrast, an owner who loses a long term time charter does not replace his lost bargain by a succession of two or more shorter charters, which are not a like for like replacement.

- - - - -

Issue 5: What alternative time charter employment was available for the SPAR CAPELLA and SPAR VEGA?

- - - - 228. - -

This issue is irrelevant in the light of my earlier conclusions. I can state my findings on the evidence briefly. There were very few reported time charter fixtures of supramax vessels throughout the relevant period on which the experts could base a view as to the available market. The expert evidence was primarily addressed to GCL’s contention that a 30 month charter would have been available, followed by a 20 month charter. Although the evidence included reported fixtures at other dates, it may not have been complete over the whole period, and the witnesses did not address all permutations in their evidence. There are certain periods for which I therefore feel unable to make any findings.

- - - - 229. - -

At the time of termination of the charters in September 2011 there was no available market for an equivalent time charter of a duration in excess of about 18 months. I reject GCL’s case that there was a market for a 30 month charter. It was based on a single fixture reported on 5 September 2011 for a newbuild, which may therefore have been agreed somewhat earlier. It was for only 2 years and was for forward delivery in December 2011. It was the only reported fixture of that length. It is not therefore representative of a market in which Spar could have let the two vessels here being considered.

- - - - 230. - -

The market rate for an 18 month charter at that date would have been US$13,000 per day.

- - - - 231. - -

At the end of March 2013, when such a charter would have expired, the longest period for an equivalent time charter for which there was an available market was about 12 months. The market rate for such a charter was US$9,500 per day.

- - - - 232. - -

At the end of March 2014, when such a charter would have expired, the longest period for an equivalent time charter for which there was an available market was about 6 months. The market rate for such a charter was $13,250 per day.

- - - - 233. - -

I have no secure evidential basis for a finding of the longest period for an equivalent time charter for which there was an available market at the end of September 2014, save that it was not as long as one year.

- - - - 234. - -

The market rates for successive one year charters from the date of termination were as follows:

- - - -

September 2011 US$14,000

- - - - -

September 2012US$9,500

- - - - -

September 2013US$10,750

- - - - -

September 2014(no market for one year charters)

- - - - - -

Issue 6: What other adjustments fall to be made, if any, to the quantum of Spar’s claim?

- - - - 235. - -

In relation to the sums due from GCS on the balance of accounts at the date of termination of the charters, Spar’s claim is evidenced by the documentary evidence prepared for the arbitration, which was also before me, and is in the amount which was accepted by the liquidators of GCS in Spar’s proof in the liquidation. GCL contends that these should be reduced by $6,755.16 in respect of a speed and consumption claim for the SPAR CAPELLA and $7,617.32 in respect of a speed and consumption claim for the SPAR DRACO. I find that GCL has failed to discharge the burden which falls on it of establishing the validity of these speed and consumption claims and accordingly Spar’s figures represent the amount due from GCS at the date of termination.

- - - - 236. - -

In relation to actual earnings to date, Spar had only made calculations up to 31 December 2014. It was agreed that a fresh calculation would need to be made to cover the period up to the date of judgment.

- - - - 237. - -

As to future earnings between now and December 2015, when the minimum periods of the charters would have expired, a notional daily rate can be applied from figures produced by Clarksons. There were several disputes in relation to this calculation.

- - - - 238. - -

It was agreed that an allowance should be made for off-hire. Spar’s expert had used actual off hire figures prior to 31.12.14 and then used a figure of 10 days per annum applied pro rata for the future. On behalf of GCL it was contended that 10 days per annum was an appropriate figure for off-hire contingencies, but that it should be applied from start to finish, as per its expert’s calculations; GCL referred in this context to clause 80 of the charters contemplating drydocking during the period of the charters. The approach of Spar’s expert is to be preferred. There is no reason to think that there would have been any drydocking in the remaining unexpired period of the charters so as to make a 10 day pro rata allowance for the remaining period inappropriate. Special Survey is required every five years. The vessels were newbuildings and would not require drydocking for Special Survey until after expiry of the minimum term of the charters, 59 months, which is the period by reference to which damages are to be assessed. The natural time for owners to schedule drydocking for Special Survey would have been following the expiry of the minimum 59 month term of the charters. This conclusion is not affected by the fact that clause 80 of the charters contemplated and made provision for the possibility of drydocking during the course of the charters.

- - - - 239. - -

In The Kildare David Steel J made an allowance of 1.5% to reflect the contingent risks of future events which would have brought the charter to an end prematurely, such as a total loss of the vessel or bankruptcy of the charterers. No such allowance is appropriate in the present case. So far as the bankruptcy of GCS is concerned, the contingency has arisen: bankruptcy has occurred. But it is not suggested on behalf of GCL that any losses thereafter should be entirely disregarded on the footing that they would have been irrecoverable from GCS, and rightly so because Spar have the benefit of the Guarantees from GCL. So far as the possibility of catastrophic loss between now and December 2015 is concerned, the possibility is sufficiently unlikely as not to warrant any discount on future earnings.

- - - - 240. - -

The sum awarded in relation to loss of future earnings will fall to be discounted for accelerated receipt. Interest will run on past losses. I will hear the parties further if they are not able to agree the rates applicable in each case, or a more approximate method of giving effect to those principles.

- - - - -

Issue 7: Do the arbitration costs fall within the scope of liability under the Guarantees?

- - - - 241. - -

The Guarantees provide:

- - - - -

“We hereby unconditionally and irrevocably guarantee as primary obligor the full and timely performance by the Charterers of each and every obligation of the Charter Party, and in the event of any one or more defaults in performance by the Charterers, we undertake, on your first written demand to promptly rectify each and every default and hereby accept the responsibility for any liability, losses or damages that you suffer as a result or arising out of such default.”

- - - - - - - - 242. - -

Because the arbitration proceedings never reached the stage of an award and no costs order was made, GCS did not come under a liability for such costs. Had it done so, failure by GCS to discharge the costs award could properly have been treated as a default in performance of a charterparty obligation (the implied term to honour an award in accordance with the contractually agreed arbitration clause) and so would have fallen within the terms of the Guarantee.

- - - - 243. - -

In the absence of a costs award, Spar argues that the costs represent loss incurred “as a result or arising out of” the default of GCS comprising the latter’s failure to pay hire and its renunciation of the charters

- - - - 244. - -

I accept this submission. It was reasonable for Spar to incur the costs of bringing arbitration proceedings against GCS, and such a course was the natural and foreseeable consequence of GCS’s breach. On my findings the claim against GCS would have succeeded. Incurring the costs of pursuing GCS in arbitration was the natural result of GCS’s default and falls within the last part of the Guarantee wording quoted above.

- - - - 245. - -

GCL argued that such costs would not have been recoverable by Spar from GCS as damages in the absence of a costs award, because the costs of legal proceedings are generally irrecoverable as damages for breach of contract and are only recoverable by the exercise of a costs jurisdiction by the court or tribunal determining the claim. That may be so, but it is not in my view an answer to this element of Spar’s claim. Irrespective of whether such costs would be recoverable from GCS as damages, they were incurred “as a result and arising out of” GCS’s defaults and therefore fall within the scope of that which GCL expressly undertook to pay, to the extent that such costs were reasonably incurred. They are therefore recoverable from GCL subject to that qualification.

- - - - 246. - -

Whether the amount of costs being claimed is reasonable is not something which it has been possible to investigate at this hearing. It was agreed that in the event they were determined to be recoverable in principle, as I hold them to be, the convenient course is that they should be subject to a detailed assessment in the absence of agreement.

- - - -

Conclusion

- - - - - 247. - -

Spar’s claim succeeds and will be quantified in accordance with the principles I have identified.

- - - - - - diff --git a/src/tests/replacer_tests/test_make_replacements.py b/src/tests/replacer_tests/test_make_replacements.py index 59cac702a..377458e0d 100644 --- a/src/tests/replacer_tests/test_make_replacements.py +++ b/src/tests/replacer_tests/test_make_replacements.py @@ -13,12 +13,6 @@ class TestMakePostHeaderReplacements: - def test_make_failing_post_header_replacements(self): - """This used to fail because the input data contained ref tags with text matching a replacement""" - original_file_content = open(FIXTURE_DIR / "broken.xml", encoding="utf-8").read() - replacement_content = open(FIXTURE_DIR / "broken.txt", encoding="utf-8").read() - make_post_header_replacements(original_file_content, replacement_content) - def test_make_post_header_replacements(self): original_file_content = open(FIXTURE_DIR / "ewhc-ch-2023-257_original.xml", encoding="utf-8").read() replacement_content = open(FIXTURE_DIR / "ewhc-ch-2023-257_replacements.txt", encoding="utf-8").read() @@ -45,6 +39,28 @@ def test_post_header_works_if_already_enriched(self): assert_equal_xml(content_with_replacements, expected_file_content) + def test_post_header_double_replacement(self): + """When a value is replaced, the value is an attribute in a ref tag. + If the replacement value is then replaced, invalid XML was generated.""" + + original_file_content = """ + + +
a +""" + + replacement_content = """ + {"case": ["a", "b", "2008", "#", true]} + {"case": ["b", "c", "1937", "#", true]} + """.strip() + expected_file_content = """ + +
+ a + """ + content_with_replacements = make_post_header_replacements(original_file_content, replacement_content) + assert_equal_xml(content_with_replacements, expected_file_content) + def test_remove_nested_legislation_references(self): tidy_output = _remove_old_enrichment_references( """ From a9b97a5fd6b7cd17a488c62976ccea5904fb2f57 Mon Sep 17 00:00:00 2001 From: David McKee Date: Fri, 29 Nov 2024 12:20:29 +0000 Subject: [PATCH 11/14] JSON files aren't XML Strings --- src/lambdas/extract_judgement_contents/index.py | 4 ++-- src/utils/helper.py | 2 +- 2 files changed, 3 insertions(+), 3 deletions(-) diff --git a/src/lambdas/extract_judgement_contents/index.py b/src/lambdas/extract_judgement_contents/index.py index 183860d43..842c326d0 100644 --- a/src/lambdas/extract_judgement_contents/index.py +++ b/src/lambdas/extract_judgement_contents/index.py @@ -34,14 +34,14 @@ def process_event(sqs_rec: S3EventRecord): upload_contents(source_key, text_content) -def extract_text_content(file_content: DocumentAsXMLString) -> DocumentAsXMLString: +def extract_text_content(file_content: DocumentAsXMLString) -> str: """ Extract text from the content elements of the XML file """ return parse_file(file_content) -def upload_contents(source_key: str, text_content: DocumentAsXMLString): +def upload_contents(source_key: str, text_content: DocumentAsXMLString | str): """ Uploads text to S3 bucket """ diff --git a/src/utils/helper.py b/src/utils/helper.py index 3183d5844..7aaa50649 100644 --- a/src/utils/helper.py +++ b/src/utils/helper.py @@ -9,7 +9,7 @@ from utils.types import DocumentAsXMLString -def parse_file(file_data: DocumentAsXMLString) -> DocumentAsXMLString: +def parse_file(file_data: DocumentAsXMLString) -> str: """ Parse XML file. Only get text within content elements :param file_data: XML file From 9b593b5cb31d6d0baec5fd9a5ca7cb9ab8ab868b Mon Sep 17 00:00:00 2001 From: David McKee Date: Fri, 29 Nov 2024 12:21:54 +0000 Subject: [PATCH 12/14] use list[LegislationReferenceReplacement] --- src/oblique_references/oblique_references.py | 5 ++--- .../test_oblique_references.py | 4 ++-- 2 files changed, 4 insertions(+), 5 deletions(-) diff --git a/src/oblique_references/oblique_references.py b/src/oblique_references/oblique_references.py index bb447f65f..2ac248249 100644 --- a/src/oblique_references/oblique_references.py +++ b/src/oblique_references/oblique_references.py @@ -28,7 +28,6 @@ from utils.proper_xml import create_tag_string LegislationReference = tuple[tuple[int, int], str] -LegislationReferenceReplacements = list[LegislationReferenceReplacement] class LegislationDict(TypedDict): @@ -202,7 +201,7 @@ def get_replacements( numbered_act: bool, replacements: list[LegislationReferenceReplacement], paragraph_number: int, -) -> LegislationReferenceReplacements: +) -> list[LegislationReferenceReplacement]: """ Create replacement string for detected oblique reference :param detected_acts: detected oblique references @@ -235,7 +234,7 @@ def get_replacements( def get_oblique_reference_replacements_by_paragraph( file_content: str, -) -> LegislationReferenceReplacements: +) -> list[LegislationReferenceReplacement]: """ Determines oblique references and replacement strings grouped by paragraph :param file_content: original judgment file content diff --git a/src/tests/oblique_reference_extraction_tests/test_oblique_references.py b/src/tests/oblique_reference_extraction_tests/test_oblique_references.py index 7276a3c0f..e740b4d22 100644 --- a/src/tests/oblique_reference_extraction_tests/test_oblique_references.py +++ b/src/tests/oblique_reference_extraction_tests/test_oblique_references.py @@ -11,7 +11,7 @@ enrich_oblique_references, ) from oblique_references.oblique_references import ( - LegislationReferenceReplacements, + LegislationReferenceReplacement, NotExactlyOneRefTag, create_legislation_dict, detect_reference, @@ -386,7 +386,7 @@ def test_get_replacements(self): ((480464, 480472), "this Act"), ] numbered_act = False - replacements: LegislationReferenceReplacements = [] + replacements: list[LegislationReferenceReplacement] = [] paragraph_number = 2 From f715dc02ea517caa7d9ae5c974ee4c7b15247b56 Mon Sep 17 00:00:00 2001 From: David McKee Date: Thu, 28 Nov 2024 12:14:38 +0000 Subject: [PATCH 13/14] v7.0.0 --- CHANGELOG.md | 5 +++++ src/lambdas/determine_legislation_provisions/index.py | 2 +- 2 files changed, 6 insertions(+), 1 deletion(-) diff --git a/CHANGELOG.md b/CHANGELOG.md index 930c3fd11..0e2d1ab30 100644 --- a/CHANGELOG.md +++ b/CHANGELOG.md @@ -1,5 +1,10 @@ # Changelog +## v7.0.0 (2024-11-28) + +- Ensure that documents with matching replacements don't replace inside XML strings +- Fix type linting + ## v6.0.2 (2024-10-03) - Enrich press summaries by fixing patch url to be press-summary, not press/summary diff --git a/src/lambdas/determine_legislation_provisions/index.py b/src/lambdas/determine_legislation_provisions/index.py index 6d575cac2..89b97351d 100644 --- a/src/lambdas/determine_legislation_provisions/index.py +++ b/src/lambdas/determine_legislation_provisions/index.py @@ -49,7 +49,7 @@ def add_timestamp_and_engine_version( "uk:tna-enrichment-engine", attrs={"xmlns:uk": "https://caselaw.nationalarchives.gov.uk/akn"}, ) - enrichment_version.string = "6.0.2" + enrichment_version.string = "7.0.0" if not soup.proprietary: msg = "This document does not have a element." From a0cb1187ea263cf67a1c59c52190f94ebe3b071c Mon Sep 17 00:00:00 2001 From: David McKee Date: Tue, 7 Jan 2025 16:15:45 +0000 Subject: [PATCH 14/14] Ensure ol_index are actually python ints not signed int32 or something --- .pre-commit-config.yaml | 6 +++--- src/legislation_extraction/legislation_matcher_hybrid.py | 5 ++++- 2 files changed, 7 insertions(+), 4 deletions(-) diff --git a/.pre-commit-config.yaml b/.pre-commit-config.yaml index 82677cc9d..bf51ffaea 100644 --- a/.pre-commit-config.yaml +++ b/.pre-commit-config.yaml @@ -15,14 +15,14 @@ repos: - id: trailing-whitespace - repo: https://github.com/astral-sh/ruff-pre-commit - rev: v0.8.4 + rev: v0.8.6 hooks: - id: ruff args: [--fix, --exit-non-zero-on-fix] - id: ruff-format - repo: https://github.com/antonbabenko/pre-commit-terraform - rev: v1.96.2 + rev: v1.96.3 hooks: - id: terraform_fmt @@ -33,7 +33,7 @@ repos: args: ["markdown", "table", "--output-file", "README.md", "./terraform"] - repo: https://github.com/pre-commit/mirrors-mypy - rev: v1.13.0 + rev: v1.14.1 hooks: - id: mypy name: mypy-src diff --git a/src/legislation_extraction/legislation_matcher_hybrid.py b/src/legislation_extraction/legislation_matcher_hybrid.py index d484d2c4a..328d8660b 100644 --- a/src/legislation_extraction/legislation_matcher_hybrid.py +++ b/src/legislation_extraction/legislation_matcher_hybrid.py @@ -89,8 +89,11 @@ def resolve_overlap(results_dict): # for every detected pair of refs that overlap for ol_index in overlaps: + # mypy was complaining about ol_index being a `list[signedinteger[_32Bit | _64Bit]]` + # so just force it to be a regular list of ints + int_ol_index = list(map(int, ol_index)) # get those two rows - overlap_rows = qq.iloc[list(ol_index)] + overlap_rows = qq.iloc[int_ol_index] # get the worst of the two (or first, if they're equal) worst_match_index = overlap_rows.confidence.idxmin() # and mark its index for deletion