Incidentally and relevantly, in the recent 2014 decision of the Supreme Court,
British Telecommunications Plc v. Telefónica O2 UK Ltd.
79 Lord Sumption summarized this line of authority and its effect in the following words:
[A]s a general rule, the scope of a contractual discretion will depend on the nature of the
discretion and the construction of the language conferring it. But it is well established that, in
the absence of very clear language to the contrary, a contractual discretion must be exercised
in good faith and not arbitrarily or capriciously. This will normally mean that it must be
exercised consistently with its contractual purpose.
80
The foregoing diction unequivocally expounds that good faith is an essential
ingredient of a contractual discretion, that such discretion must be exercised in good
faith and must be consistent with the purpose of the contract. Whereas it seems to run
counter to the age-old proposition in common law that any implied application of
good faith is incompatible with the unshakable position of the doctrine of freedom of
contract, it also seems to point to a general default rule from which the parties may
contract out.
81 The principle of freedom of contract is thus left undisturbed. In the
view of the present authors, in light of the above-noted decision of the Supreme
Court, in so far as English law is concerned, in the absence of any express terms in a
contract to the contrary, good faith and reasonableness are requisite implied elements
of a contractual discretion; and, in respect of commercial contracts, an implied duty
of good faith may well evolve into a default rule.
With regard to a cargo lien in a charterparty and the exercise of it by the
shipowner, a discretion obligation translates into acceptance of an implied duty of
good faith provided it can be shown that the lien is indeed a contractual discretion. In
the opinion of the present authors, the cargo lien is a type of contractual discretion,
better referred to as a “determination discretion” from which will flow discretion
obligations requiring the shipowner to act honestly, reasonably and in good faith.
82
As mentioned earlier, this commentator suggests that the rationality test is the
appropriate minimum objective standard that should be used instead of reasonableness which he contends is an external objective standard. In the observation of the
present authors, this approach will preclude an implied duty on the part of a
shipowner to act reasonably in exercising his right under a lien clause.
In the opinion of the present authors, it can be argued that the lien clause is a
determination discretion. Where there is an express contractual security provision in
a charterparty, such as Clause 8 of the Gencon (1994) Form, the contract confers a
power on the shipowner to take a decision to exercise a lien on cargo. Such decision
affects the interests of both parties. Furthermore, the charterparty gives to the
shipowner the responsibility to decide reasonably how much of the cargo should
be secured. This affects the interests of the charterer and shipper and may result in
differences of view regarding what amount of cargo secured is reasonable. Arguably,
79 [2014] UKSC 42.
80 Ibid. at para. 37.
81 Ibid. at [2014] UKSC 42 para. 50.
82 Foxton (2017), p. 367.
Shipowner’s Implied Obligations in a Charterparty Relating to. . .
329
British Telecommunications Plc v. Telefónica O2 UK Ltd.
79 Lord Sumption summarized this line of authority and its effect in the following words:
[A]s a general rule, the scope of a contractual discretion will depend on the nature of the
discretion and the construction of the language conferring it. But it is well established that, in
the absence of very clear language to the contrary, a contractual discretion must be exercised
in good faith and not arbitrarily or capriciously. This will normally mean that it must be
exercised consistently with its contractual purpose.
80
The foregoing diction unequivocally expounds that good faith is an essential
ingredient of a contractual discretion, that such discretion must be exercised in good
faith and must be consistent with the purpose of the contract. Whereas it seems to run
counter to the age-old proposition in common law that any implied application of
good faith is incompatible with the unshakable position of the doctrine of freedom of
contract, it also seems to point to a general default rule from which the parties may
contract out.
81 The principle of freedom of contract is thus left undisturbed. In the
view of the present authors, in light of the above-noted decision of the Supreme
Court, in so far as English law is concerned, in the absence of any express terms in a
contract to the contrary, good faith and reasonableness are requisite implied elements
of a contractual discretion; and, in respect of commercial contracts, an implied duty
of good faith may well evolve into a default rule.
With regard to a cargo lien in a charterparty and the exercise of it by the
shipowner, a discretion obligation translates into acceptance of an implied duty of
good faith provided it can be shown that the lien is indeed a contractual discretion. In
the opinion of the present authors, the cargo lien is a type of contractual discretion,
better referred to as a “determination discretion” from which will flow discretion
obligations requiring the shipowner to act honestly, reasonably and in good faith.
82
As mentioned earlier, this commentator suggests that the rationality test is the
appropriate minimum objective standard that should be used instead of reasonableness which he contends is an external objective standard. In the observation of the
present authors, this approach will preclude an implied duty on the part of a
shipowner to act reasonably in exercising his right under a lien clause.
In the opinion of the present authors, it can be argued that the lien clause is a
determination discretion. Where there is an express contractual security provision in
a charterparty, such as Clause 8 of the Gencon (1994) Form, the contract confers a
power on the shipowner to take a decision to exercise a lien on cargo. Such decision
affects the interests of both parties. Furthermore, the charterparty gives to the
shipowner the responsibility to decide reasonably how much of the cargo should
be secured. This affects the interests of the charterer and shipper and may result in
differences of view regarding what amount of cargo secured is reasonable. Arguably,
79 [2014] UKSC 42.
80 Ibid. at para. 37.
81 Ibid. at [2014] UKSC 42 para. 50.
82 Foxton (2017), p. 367.
Shipowner’s Implied Obligations in a Charterparty Relating to. . .
329