Warranties and representations
The Court of Appeal upheld the Commercial Court's decision and dismissed the appeal.
The Court emphasised the general principle that "in the absence of words of representation, the mere offer of contractual terms will not amount to any representation." However, the Court accepted that there are some circumstances where an offer to contract on certain terms carries with it an implied representation as to the party's honesty in relation to the proposed transaction. In this case, the Owner was acquitted of any dishonesty, and the representations were considered negligent rather than fraudulent. Had the Owner known that the data in the Circular was inaccurate, the position may have been different.
The Court held that the warranties proposed in the parties' contractual negotiations had to be understood in their intended context. The relevant clause contained a guarantee, but also contained detailed provision about what was to happen if the vessel failed to perform in accordance with the guarantee. The Court emphasised that those were words of obligation and not of representation and that they expressly contemplated the possibility of over-consumption. The Court concluded that the mere offer of a speed and consumption warranty should not of itself be held to involve an implied representation as to current or recent performance.
As the party seeking to rescind for misrepresentation, the Charterer needed to show that the representation played a real and substantial part in inducing it to enter the charterparty. The key question for the Court was whether the claimant would have entered into the contract had the representation not been made, not whether it would have done so if it had been told the true position.
The Court, when identifying the hypothetical factual scenario in which the representation had not been made, considered the possibility that the Owner had offered the same warranty, but made no representation as to the vessel's recent performance: in effect, as if the Circular had omitted the explanation that the data in relation to fuel/speed was based on the vessel's last three voyages. In that scenario, the Court of Appeal found that the charterparty would still have been concluded on the same terms.
Accordingly, the pre-contractual representations the Owner made in relation to fuel consumption did not induce the Charterer to enter into the charterparty. The Court noted that this finding was sufficient to dismiss the appeal.
In considering whether the Charterer had affirmed the contract, the Court of Appeal confirmed that: (i) a decision to affirm the contract must be communicated unequivocally to the other party; (ii) such communication may be done by conduct or by necessary implication; (iii) the test is objective; and (iv) the effect of a reservation of rights is, or at least may be, to prevent conduct that would otherwise amount to an unequivocal affirmation, from having that effect.
While a reservation of rights will often have the effect of preventing subsequent conduct constituting an election, the Court held that this is not an invariable rule and that a Court must have regard to all the circumstances, including the nature and terms of any reservation of rights which have been communicated and the nature and consequences of any demand for future performance. The Court noted that an unconditional demand for future performance “may” be incompatible with a reservation of rights, not that it necessarily will be.
Where conduct is consistent with both a reservation to rescind and continuation of the contract, then an express reservation will preclude the making of an election. However, where an "unconditional demand of substantial contractual performance" occurs, this cannot be consistent with a reservation and must be affirmatory. It was noted that this did not create a specific category of intrinsically affirmatory conduct that will always affirm a contract. Rather, there remains a need to evaluate all the circumstances in which the conduct occurs to determine whether it is affirmatory. Here, the Charterer's undertaking of a major voyage from the UK to Malaysia combined with their general reservation was deemed inherently affirmatory.
Section 2(2) of the Misrepresentation Act ("the Act")