Norton Rose Fulbright partner Andrew Williams looks at the implications for time charters and contracts of the High Court judgement concerning the interpretation of the term “forthwith” in the VLCC Miracle Hope case
The VLCC tanker Miracle Hope was subject to a complex chain of time and voyage charters and was arrested in Singapore by a lender in connection with a dispute relating to the discharge of over 1M barrels of crude oil, under a trade financed by the lender and for which the lender had not received repayment. Discharge had occurred without presentation of original bills of lading, in reliance on customary indemnity provisions in the charters that required the provision of bail or other security to secure release of the vessel, if Miracle Hope was arrested.
Upon the arrest of Miracle Hope, injunctions were sought along the chartering chain to secure the release of the vessel. Those injunctions were granted and required by their terms the provision of bail or other security to release the vessel from arrest “forthwith.” Following the grant of the injunctions, the charterers sought to comply with the injunctions, but failed to reach agreement with the lender as to the terms of the bank guarantee required to secure the release of the Miracle Hope. The vessel thus remained under arrest for several weeks after the injunctions were granted.
Orders to vary the injunctions were sought to more precisely specify by when the action must be taken, to release the Miracle Hope from arrest, rather than relying simply on “forthwith.” The variations of the injunctions were resisted, and the matter came before Teare J. ( EWHC 995 (Comm)).
The judge recognised that the use of the word “forthwith” was an indication that “the action required to be taken must be taken, at the least, with some urgency” (paragraph ). It was acknowledged, per the original injunction application, that there was a very pressing need for the security to be provided to secure the release of the vessel from arrest.
However, Teare J. declined to follow the dictionary definition of “forthwith” and conclude that this effectively required instantaneous compliance, stating that such an interpretation would be “unrealistic.” The judge held that: “In my judgment the word “forthwith” in the present context envisages that the security will be provided in the shortest practicable time. What is practicable will inevitably depend upon the circumstances of the case.”
What can those who spend time negotiating time periods for compliance with contractual obligations take away from this judgment? Whilst the judgment of Teare J. concerned the interpretation of a court order, not a contract, there is no reason in principle why the interpretation favoured by Teare J. should not apply equally in other settings.
That being so, the first key point is therefore that “forthwith” clearly may not require compliance quite as quickly as a party thinks it might. Many will still think “forthwith” has its dictionary definition and means “immediately.” This is not necessarily so. Parties must be aware, if they choose still to use the term “forthwith,” that it is likely to be given a wider meaning, which is always fact-specific.
The second key point follows from the first. “Forthwith” has been demonstrated by the facts of the Miracle Hope case to be an inherently imprecise term, and it is almost certainly the case that the true intention of the parties can be more accurately captured in plainer English. If the parties mean “as soon as reasonably practicable,” they should say so. If they wish to impose a longstop, “as soon as reasonably practicable and no later than…” can be used. And if the parties really do intend for “forthwith” to have its dictionary definition, then “on the date of this agreement” or similar is likely to flush out in negotiation whether or not a demand for such speedy compliance is reasonable in the circumstances, or realistically achievable.
The consequences for market participants of continued reliance on “forthwith” may therefore at best be protracted negotiations as to the term’s meaning, but at worst may result in uncertain contracts and, ultimately, greater risk of dispute with counterparties.