Introduction

The case of SK Shipping Europe Ltd v Capital VLCC 3 Corp ([2022] EWCA Civ 231) was adjudicated in the England and Wales Court of Appeal (Civil Division) on February 25, 2022. This case revolves around allegations of negligent misrepresentation made by SK Shipping, the owner of the Very Large Crude Carrier (VLCC) named "C CHALLENGER," during negotiations for a two-year charterparty with Capital VLCC 3 Corp, the charterer. The core issues addressed include whether misrepresentations regarding the vessel's fuel consumption induced the charterer to enter into the contract and whether the charterer's subsequent affirmation of the contract precluded rescission.

Summary of the Judgment

The Court of Appeal upheld the initial decision by Mr Justice Foxton, which dismissed the charterer's claims for misrepresentation. The judge found that although negligent misrepresentations about fuel consumption were made, they did not induce the charterer to enter into the charterparty. Furthermore, the charterer's actions in proceeding with the vessel's voyage were deemed an affirmation of the contract, rendering the charterer's attempt to rescind as a repudiatory breach. Consequently, the owner was entitled to damages, and the charterer's appeal was dismissed.

Analysis

Precedents Cited

The judgment extensively engaged with prior case law to establish the boundaries of misrepresentation and affirmation in contractual contexts. Key cases included:

• The Larissa [1983]: Distinguished between words of obligation and representation in contractual offers.
• Kingscroft Insurance Co Ltd v Nissan Fire & Marine Insurance Co Ltd (No. 2) [1999]: Clarified that offers to contract do not inherently constitute representations about subject matter.
• Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010]: Provided guidance on inducement and the necessity of misrepresentation in contract formation.
• Property Alliance Group Ltd v Royal Bank of Scotland [2018]: Explored implied representations concerning honesty in commercial transactions.
• Idemitsu Kosan Co Ltd v Sumitomo Corp [2016]: Reinforced that contractual offers do not generally amount to representations unless explicitly stated.
• Royscot Trust Ltd v Rogerson [1991]: Addressed the ramifications of induced contracts based on misrepresentation.

Legal Reasoning

The court dissected the interactions between SK Shipping and Capital VLCC 3 Corp to assess whether misrepresentations were made and whether they influenced the contract's formation. The pivotal points in the legal reasoning included:

• Nature of Representations: The court determined that the representations made in the November 2016 Circular were limited to past performance averages and did not extend to future expectations or absolute performance statements.
• Inducement to Contract: It was concluded that the charterparty would have been entered into regardless of the misrepresentations, albeit possibly at a slightly reduced hire rate. The representations did not significantly influence the decision to contract.
• Affirmation of Contract: The charterer's decision to proceed with the vessel's voyage, despite reservations, was deemed an affirmation of the contract, negating any claim for rescission based on misrepresentation.
• Misrepresentation Act 1967: The judge considered whether to exercise discretion under section 2(2) to award damages in lieu of rescission but ultimately found that rescission was not applicable due to affirmation.

Impact

This judgment has significant implications for commercial contracting, particularly in the maritime sector. It clarifies that:

• Negligent misrepresentations concerning performance metrics may not suffice to rescind a contract if the contract is affirmed by subsequent conduct.
• Affirmation can occur implicitly through actions that demonstrate acceptance of the contract's terms, even if reservations are verbally expressed.
• Courts may uphold affirmation over rescission, thereby holding parties liable for repudiatory breaches if they proceed with contractual obligations despite alleged misrepresentations.
• This case underscores the importance of accurate and verified representations in contractual negotiations to avoid unintended affirmation and subsequent liability.

Complex Concepts Simplified

Conclusion

The ruling in SK Shipping Europe Ltd v Capital VLCC 3 Corp serves as a pivotal reference in contract law, particularly concerning misrepresentation and affirmation. It elucidates that negligent misrepresentations about performance metrics do not automatically grant a party the right to rescind a contract if subsequent actions affirm the contract's validity. The case emphasizes the necessity for parties to exercise caution and ensure the accuracy of representations during negotiations. Furthermore, it highlights the court's role in meticulously assessing the interplay between misrepresentations and contractual affirmations to uphold equitable outcomes in commercial disputes.