The Gazette 1981

GAZETTE

JULY-AUGUST 1981

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."

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."

This was confirmed by

The Chikuma

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the payment been withdrawn by the owners on or before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.

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.'

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".

Clear

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.

Kawasaki

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

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,"

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.

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.'"

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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