Adv. Gill Nadel, Moran Shmilovich
Recently, a decision was issued by the District Court of Haifa which rejected the action of the Tzim company for payment of around 8 million NIS based on an arbitration decision issued to the sides.
The case involved a long-standing legal dispute that had reached its end. The case began with the set-up of a coal-fueled power station by the electric company in Hadera. The electric company referred to Zim so that the latter could provide marine shipping of the coal. A leasing contract for a period of 20 years was signed between the two companies, under which the electric company would lease a ship from Zim that had been specially built to transport the coal for the electric company. The electric company assigned all its rights and duties under the lease contract to the coal company and therefore the ship was transferred to the coal company.
Over the course of years, a dispute arose between Zim and the coal company regarding the performance of the ship and calculation of leasing fees.
After the sides referred to the court, the dispute on the matter was transferred to arbitration. Regarding the dispute over calculation of leasing fees, the discussion primarily surrounded the question of updating the costs of yearly dock work required for the ship.
After the ship was returned to the marine shipper and after a short period of time, dock work was done on the ship at a cost of $1,835,444. The marine shipper claimed that the coal company ought to have paid for this dock work, in light of the arbitration, and when it failed to do so, Zim referred to the court, with an action by virtue of the arbitration decision to obligate the coal company in the full dock expenses.
The coal company, on its part, claimed that the arbitration decision did not place any duty upon it to bear the costs of the dock expenses, since they had been done after the end of the period of the lease. It claimed that the arbitration decision ruled only how the payments should be calculated.
The court first explained the concept of dock, for the purposes of the dispute before us, in light of the arbitration decision and the leasing contract, and ruled that this was a definition for docking work on the ship generally and sometimes the definition for dry-docking work only. In the arbitration decision and the lease agreement there is no express definition for the concept of docking, but from the intention of the sides it seems that they intended to refer to dry-docking work, which was done periodically.
The question that arose is whether the coal company must bear the expenses for the docking work done after the period of the lease or not?
After examining the intentions of the sides and the language of the lease agreement, it arose that the lease agreement included the costs of docking is a part of the upkeep expenses which included continual expenses needed for the operation of the ship, and also special expenses needed only on occasion, including the costs for performing docking.
Zim claimed that in light of the high cost of each docking it was agreed by the sides that in the framework of the continual payments would be included a component for the expected docking, so that Zim was supposed to gather monies ahead of time to finance each docking; according to this approach the accumulation lasted the whole length of the contract such that Zim, as the owner, continued to gather payments for future dockings even if they would be performed after the end of the leasing period. un contrast, the coal company claimed that the payment for the docking was done only post facto, that is, the payment was intended to cover the costs of the last docking.
Under this claim, since the docking was intended to adjust the ship for future activities, there was no room to obligate it in payment for the costs of the docking done after the end of the leasing period.
The court assumed that the sides had agreed that each docking was intended to fix problems that arose in the period prior to it, with the goal of ensuring the continuing of the ship's activities in the future and its maintenance as a productive property.
After this, the court examined the language of the leasing contract and found that the agreement did not include any sort of stipulation regarding the number of dockings that would be included in the calculation of the fee that the coal company must pay, nor any sort of stipulation regarding the payment for the docking done after the end of the period. Nor did the agreement have any stipulation testifying that the intention of the sides was to gather funding to perform the docking.
Beyond that, it was ruled that in light of the intent of the sides and from the language of the leasing contract, it arose that the lease was meant to be for the entire life of the ship, that is 20 years, and that at the end of this period, the ship was supposed to be sold as scrap metal. From the arbitration agreement, as well, in light of the intentions of the sides, it arises that after 20 years, the ship would cease to sail and in the 20th year of the ship,and no docking would be done.
In light of this, the court ruled that it can be derived that the intent of the sides was that at the end of the lease period the ship would be turned into scrap and there would be no need for additional dockings, and that at the end of the leasing period the ship would be retired. Therefore, it arises that the coal company was not liable for the payment of the docking performed after the end of the leasing period.
The court examined, in addition, whether the arbitration decision changed this conclusion, and ruled that the arbitration agreement was intended to realize the intent of the sides and not to create a new contract between them, and therefore it can be decided that the arbitration agreement related only to the docking actually performed during the lease period.
Accordingly, the court dismissed the action of the Zim Company and obliged it in the legal expenses of the coal company at a total of 200,000 NIS + VAT.
The decision: civil case 142-04 "Zim" Israeli Sailing Company Ltd v. The National Company for Coal Supply Ltd. For Zim- Ayal Doron and others from the office of Adv. S. Friedman; for the coal company- Adv. Tzvi Nixon and/or Meir Heller and other from the office of Adv. Elchanan Landoi.
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