Christian Dwyer Global Head of Admiralty
Towcon: meaning of "in light ballast condition"
Regulus Ship Services v. (1) Lundin Services and (2) IKDAM Production SA  EWHC 2674 (Comm)
This judgment helpfully clarifies the meaning of the frequently used towage term “in light ballast condition”. It also highlights the risks of jumping the gun when deciding whether and when you are entitled to terminate a contract based on the other party’s breach.
The background facts
In August 2012, Regulus entered into a BIMCO towage contract (the “Towcon”) with Lundin, pursuant to which Regulus agreed to tow the FPSO IKDAM (owned by Lundin) from Sousse, Tunisia, to Labuan, Malaysia, a voyage of over 12,500 nautical miles. Soon after the tow commenced, however, it became apparent that the convoy was not achieving the desired speed and a dispute arose between the parties.
Regulus contended that Lundin had breached an express term of the Towcon by failing to provide the vessel “in light ballast condition”, which had resulted in the voyage taking longer than it should have done. Regulus sought to claim for this delay and for the additional costs incurred as a result.
Lundin counterclaimed, alleging that Regulus had breached an implied term of the Towcon by failing to ensure that the convoy would maintain an average speed of 4.5 knots. Their counterclaim included the costs of hiring a substitute tug to complete the tow.
The parties entered into negotiations in an effort to resolve these claims but were unsuccessful. As a result, Regulus, in order to assert a lien over the FPSO in respect of its delay claim, diverted the tow to Singapore. A few days later, on 21 March 2013, Regulus had a change of mind and issued instructions directing its tug to resume the voyage to Labuan. The Master of the FPSO, however, refused to heave up anchor.
On 23 March 2013, following this refusal by Lundin to permit the towage to resume, Regulus sent an e-mail, purporting to give Lundin a back-dated, 48 hour notice period for the cancellation of the Towcon. This e-mail stated among other things:
“… as per Cl.16(c) of BIMCO Towcon Contract, we hereby give you Notice of Cancellation of Contract and withdrawal of Tug. Further as per Clause 16(d) we will give you 48 Hrs Notice, which commenced March 21/2000 LT…”
It was common ground that the Towcon came to an end on or about 23 March 2013, but there was a difference of opinion as to who was in repudiatory breach of the Towcon.
The Commercial Court decision
The meaning of the term “in light ballast condition”
The Court considered which party should be liable for the slow progress of the tow. Both parties put forward differing interpretations of the term “in light ballast condition”.
Regulus argued that the meaning was as stated in Ease Faith Ltd v. Leonis Marine Management Ltd in 2006, namely that:
“A vessel is normally said to be in "light ballast condition" when she is carrying (as well as any "constants" and consumables) the minimum ballast that will enable the particular vessel to proceed safely and in a seaworthy condition on her intended voyage.”
Regulus argued that the term “in light ballast condition” translated to a requirement by Lundin to ensure that the vessel had the minimum ballast weight that could safely be required for the tow.
Lundin, however, relied on a later paragraph in the same decision where the Court used slightly different wording:
“At its simplest it comes to this: ballast is any material placed on board the vessel to add weight and the reference to "light" refers to the least amount of ballast with which the vessel can safely and properly proceed on her voyage.”
Lundin emphasised the use of the word “properly”, arguing that this meant that the tow should be legally fit for the voyage. They claimed that this included a requirement that the voyage was insured. Lundin then took their argument a step further, asserting that the requirement that the voyage was insured included an obligation that the ballast condition of the tow be in accordance with whatever draught and displacement conditions the marine warranty surveyor deemed necessary.
The Court preferred Regulus’ interpretation, commenting that Lundin’s suggested meaning would have the effect of depriving the term of any sensible meaning. Rather, the use of the phrase “in light ballast condition” was intended to ensure the physical fitness and stability of the voyage, a requirement that was meant to protect Regulus as the tug owner.
Regulus contended that Lundin’s refusal to proceed with the tow was a repudiatory breach of the Towcon, which Regulus then accepted by their 23 March 2013 email. Lundin, on the other hand, contended that the 23 March 2013 email was in itself a repudiatory breach of the Towcon, which Lundin accepted by their reply to it.
The Court found that Lundin’s refusal to proceed with the tow was not sufficient to amount to a repudiation of the Towcon, holding that a delay of just two days was not significant in the context of the towage. The Court further found that, even if Lundin had been in repudiatory breach, the 23 March 2013 email could not be read as an acceptance of such repudiation. Rather, by that e-mail, Regulus had not purported to accept a repudiatory breach but had instead claimed to be exercising a contractual termination provision. The reasonable reader would understand the 23 March 2013 email as an indication that Regulus was refusing to perform the Towcon without giving proper notice as required by the Towcon.
The Court concluded that Regulus had wrongfully repudiated the Towcon by sending the 23 March 2013 email giving backdated notice of cancellation, which Lundin accepted by their email in response. Lundin was entitled to recover damages for the costs of engaging an alternative tug to complete the voyage.
Whilst this case provides a helpful clarification as to how the courts will view the term “in light ballast condition”, it also has wider application in providing a reminder of the risks of terminating a contract prematurely.
Whilst Regulus was able to establish that Lundin had acted in breach of the Towcon and, therefore, that it was in principle entitled to recover damages in respect of the delay, Regulus’ miscalculation in terminating the Towcon prematurely resulted in Regulus being found to be itself in repudiatory breach of contract and being held liable in damages.
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