The Gazette 1981

JULY-AUGUST 1981

GAZETTE

consideration in deciding what meaning the parties intended the words to bear in the case of alternative possible meanings. However, where the words are unambiguous, the Court is not entitled to reject the exclusion clause, "however unreasonable the court itself may think it is." 6 The general rule of construction, however, as Lord Wilberforce stated in relation to commercial contracts is that: there is everything to be said for allowing the parties to estimate their respective claims according to the contractual provisions they have themselves made." 7 this case payment on foot of a time charterparty arrived on the due date, but by an irrelevant complexity of Italian banking practice, if drawn out from the owners' bank within four days, the owners would have been potentially liable for the subtraction of a small interest charge. Had the payment been withdrawn by the owners on or before the fourth day, the interest would have amounted to approximately $ 7 0 - 1 00 out of the $ 6 8 , 8 63 due. The charterparty was a Time Charterparty in the New York Produce exchange form; and clause 5 provided that the payment of the hire was: to be made in . . . cash in United States currency . . . monthly in advance . . . otherwise failing the punctual and regular payment of the hire . . . the Owners shall be at liberty to withdraw the vessel from the service of the Charterers . . . The financial loss suffered by the owners could be reasonably said to be inconsiderable, involving, as it did, a shortfall of under 0 . 0 7 per cent, of the monthly hire for four days. However, the shipowners claimed to exercise their right under the term of the contract to withdraw the vessel from the service of the hirers. The hirers claimed that the withdrawal was in breach of contract and sought $ 3 , 0 0 0 , 0 00 compensation for the breach. The House of Lords unanimously concurred with Lord Bridge's speech in which he held that the hirers had not paid the instalment due in full and on time. 9 According to the strict interpretation of the charterparty, the owners were within their rights in withdrawing the vessel. Their Lordships declined to be deflected by the previous cases expressing, as Lord Bridge put it: earlier exercises of judicial ingenuity to mitigate the rigours of clauses in charterparties giving to ship- owners a right to withdraw their ships on failure or default in payment of hire or freight which he said 'had not had a happy history.' 9 * Two principles are of importance in noting the route which led to his decision. First, he pointed out that ship- owners and charterers bargain at arms length. Neither class has such a preponderance of bargaining power as to be in a position to oppress the other. Secondly, he stressed that where c ommon form contractual clauses are used, it is of "overriding importance that their meaning should be certain and well understood". 10 Clear This was confirmed by The Chikuma In

and consistent principles must be followed — in a phrase, that contractual terms must be given strict interpretation. Such strict interpretation of the contract appears to give rise to not inconsiderable hardship, and contrasts with the principles of assessment of commercial agree- ments evident in cases like Hong Kong Fir Shipping Co. Ltd. v. Kawasaki . n There, a time charter contained clauses stating that the vessel was in every way fitted for ordinary cargo service and that it would be maintained by the owners in a thoroughly efficient state in hull and machinery during service. The vessel was kept out of service for repairs for over four months. The charterers wrote twice to the owners repudiating the charterparty. The Court of Appeal held, however, that the charterers were not entitled to repudiate: the delay involved in ameliorating the condition of the vessel was not so great as to frustrate the commercial venture of the charter. The Court of Appeal declined to interpret the contractual term "seaworthy" as a condition stricto sensu, because this would entitle the hirer of a wooden vessel to repudiate, if even one nail was absent. Similarly, in Schuler A.G. v. Wickman Machine Tool Sales Ltd , 12 a clause in a contract stating it to be a "condition" that certain visits should be made by sales representatives was held not to give a right to terminate the contract for any breach. This would be too unreasonable a result. The word "condition" was, the House of Lords held, to mean no more than "contractual term". To adopt the primary meaning of the term would result in Schuler being able to determine the contract for a failure to make one in over a thousand visits; "this is so unreasonable," said Lord Reid, "that it must make me search for some other possible meaning of the contract. If one can be found, then Wickman must suffer the consequences. But only if that is the only possible interpreation," 13 On the face of it, there appears to be a distinction be- tween the approach in the Photo Production and The Chikuma cases on the one hand, and the Schuler A.G. case on the other. They could be reconciled on the bases that there was, according to the Court in Schuler A .G. v. Wickman, an ambiguity, but as is often pointed out, most words have an "open texture" and are capable of meaning more than one thing. Moreover, Lord Wilberforce (dissenting) considered the word to be free from ambiguity, so it is artificial to reconcile the cases on this basis. They do indeed evince a difference of approach. The force of the Hong Kong Fir and Schuler A.G. cases is that the court seeks to give a reasonable inter- pretation to the contract and, to this end, places a construction on words and phrases which facilitates this. However, in the two more recent decisions, the procedure is different. The Court is to look primarily at the "ordinary" meaning of the words used. Only if the words used are unclear or ambiguous is the court entitled to turn to consider the reasonableness of the interpretation. The words used by the parties govern, rather than any actual or imputed intention. As Lord Diplock put it in the Photo Production case, the court is not entitled to reject an exclusion clause "however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only.'" 4 As reinforcement for this view of the attitude shown by the House of Lords, it should be remembered that the Court of Appeal had decided the case — at least in part — on the basis of the

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