BS & N Ltd v Micado

BS & N Ltd v Micado Shipping Ltd (The ‘Seaflower’) [2001] 1 Lloyd’s Rep 341

Construction of contractual terms as conditions and the right to terminate.

Facts

Ship owners chartered a vessel, The Seaflower, to charterers to carry oil. Clause 46 required major oil companies’ approvals and stipulated that (1) the “owners guarantee to obtain within 60 days Exxon approval” and (2) if other existent approvals were lost and not reinstated for 30 days, the charterers were permitted to terminate. The vessel performed three voyages carrying fuel for BP for over two months, after which they set a date to carry Exxon oil. Owner’s could not guarantee Exxon approval and the charterer’s terminated.

Issues

The question arose as to whether the oil company approvals clause constituted a condition of contract, the breach of which entitles the innocent party to repudiate the contract.

Decision/Outcome

The Court held that the term of a contract will be held to be a condition if, on the construction of the term, the nature of the contract and/or circumstances of the case demonstrate that the Parties must have intended that the innocent party would be discharged from performance if the term was not fully complied with. On the facts, a pure linguistic construction of Clause 46 leads to inconsistencies in comparing Exxon’s approval to the treatment of other approvals However, Parties must be assumed to have intended consistency in the contract, and thus, if loss of one major approval for over 30 days conferred a right to terminate, then the failure to guarantee Exxon approval within 60 days should do so as well so as to achieve a consistent result. This also lends support to a construction that gives greater weight to the word “guarantee” and the time limit in the clause, particularly when contrasted to the wording of other terms within the contract. Thus, the obligation to obtain Exxon approval within 60 days is to be constructed as a condition precedent of the contract, breach of which constitutes repudiation entitling the charterer’s to terminate.

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