REDELIVERY UNDER TIME CHARTERS

NOTES FOR A SEMINAR
GIVEN TO THOMAS MILLER
ON FRIDAY, 14TH JULY 2006
BY DAVID HUGHES

In this paper, I propose to review the authorities relating to redelivery under time charters and then see what principles can be derived from them. In the process, we shall hopefully cover the types of problems, or some of them, which you or your members may be likely to come across.

The Charter Period
Consider the various descriptions to be derived from the cases.

1. Watson Steamship –v- Merryweather 1913 Atkin J

The vessel HUGIN was chartered for a period

“from May 15/31 1912, until 15/31 October 1912”, and
“hire to continue until her redelivery to owners (and then in handwriting) between 15th and 31st October ,1912”

Vessel was redelivered after the 31st October and the resultant claim was for the market rate from that date until the actual redelivery. The claim succeeded but the reasoning of the Judge was that the addition of the handwritten words had the effect of negativing the extension of the contract beyond the 31st October. Otherwise a margin would have been implied. It made time of the essence and accordingly Owner’s claim succeeded.

2. The London Explorer- HL 1967

The charter period was

“from the time of delivery, for 12 months 15 days more or less in Charterers option”

She was delivered on 29 December 1967 but her final voyage was from Japan with cargo for New Orleans and Houston. She was unfortunately caught up in strikes at both discharge ports and could not be redelivered until 24th April 1969, well beyond the original date for redelivery. The question was at what rate should hire be paid for the period beyond the contractual redelivery date- assumed to be 13 January on the basis of the 15 days margin in the above wording. But in this case it was the Charterers argued that the additional amount should be damages assessed at the market rate because the market had fallen for that period. So Owners were saying that the Charter should continue beyond that at the charter rate. In the event the Owners arguments succeeded and the extra hire had to be paid at the charter rate.


3. The Dione 1975 –CA (Denning, Orr & Browne)

This was on a Baltime 1939 Form and the charter was for

“a period of 6 months time charter 20 days more or less in charterers’ option from the time the vessel is delivered and placed at the disposal of the Charterers…”

She was delivered on 8th March 1970 and sent on 2 voyages. On 2nd August she was sent on a third voyage.Having regard to the periods of the first 2 voyages, the charterers could not reasonably have anticipated redelivery by 28th September i.e. 6 months and 20 days from 8th March. A reasonable estimate for redelivery would have been the middle of October. In fact it was redelivered on 7th October. The charterers paid the contractual rate of hire from the time of delivery on 8th March to that of redelivery on 7th October. The owners claimed damages of £6,015 (in respect of the period from 28th September) and the matter went to arbitration and thereafter on appeal on what was in those days a special case, the question being whether or the construction of the charter the charterers were or were not in breach in failing to redeliver the “DIONE” for 8.416 days after the latest date for redelivery specified in clause 1 of the charter; namely 20th September 1970. At first instance before Mocatta J, it was held that the charterers were not in breach and that owners were only entitled to no more than nominal damages. The answer to the special case was accordingly no. This was appealed and Denning gave a leading judgment in which the notion of the illegitimate last voyage was introduced. Various principles are to be derived.

(i) Where the charterparty expressly defines the margin as 20 days more or less, it was the duty of the charterers to redeliver the vessel by the 20 days more i.e. by 28th September 1970.

(ii) It was illegitimate for the charterers to send the vessel on the third voyage as they could not reasonably have expected to complete the voyage by 28th September.

(iii) (Interestingly) by the 2 Judges other than Denning, Orr & Browne LJJ that since the arbitrators had held that 8.416 days were “within the reasonable elasticity which is proper to allow” the Court could not go behind this finding – interesting because they would have treated that as a fact and in those days it had to be a question of law for consideration by the Court.

(iv) Since the charterers had failed to redeliver the vessel within the permitted margin they must pay the charter rate up to 28th September and the market rate thereafter.

4. The Democritos CA 1976

The duration of the NYPE Form was described as being

“duration about 4 to 6 months”.

It was held by the Court of Appeal that a margin should be allowed beyond the 6 months. The margin being allowed by the arbitrators was 5 days. But in another case ¬The “Bocimar” v. Ferenco Navigation [2002] where the charter was for a period of 11 to 14 months and the charterers redelivered 5 days before the expiry of the 11 months, the arbitrators declined to imply any margin noting that the charterers could have found further employment to bring redelivery within the broad 3 month span. Note that a margin will not be implied where the parties have in their charterparty expressed the charter period as being between a certain minimum and maximum time. This is sometimes expressed as trying to imply elasticity on elasticity and the Courts are reluctant to do that. Similarly where there is an additional period added by the parties themselves such as the phrase “20 days more or less”.

5. The Sanko Honour – 15th October 1984 Hobhouse J.

“The vessel shall be delivered by Owners as a new building unused at or off Builders’ shipyard Japan at Owner’s option and redelivered to Owners at a port or point at sea worldwide within Institute Warranty limits but not further in distance than Persian Gulf is from Japan at charterers’ option.”

The vessel was redelivered at Honolulu and the owners contended that Honolulu was not a legitimate place to redeliver the vessel because it was further from the Persian Gulf than Japan was. The matter went to arbitration and the arbitrator held that it should be construed in favour of owners. The approach of the arbitrator was criticized as being unacceptable because he wanted simply to approach it as the most sensible and business-like construction of the redelivery obligation but the judge, Hobhouse J, held that the phrase “not further in distance than the Persian Gulf is from Japan” indicated that Japan was to be treated as the centre-point from which the obligations of redelivery were to be regarded. The wording of the charterparty was clear and it incorporated the bargain which the parties made and the tribunal’s duty was to give effect to that bargain in accordance with the words the parties had chosen. The arbitrator’s approach was therefore wrong and the proper construction of the charterparty wording was the distance from Japan, and Honolulu was within the redelivery range laid down by the charterparty and the Award would be set aside.

6. The Artic Skou – 5th July 1985 – NYPE Form

It was concerned with what time was to be applied in computing the period of a charterparty and specifically whether there was a implied use of local time. The vessel was delivered in Brazil and redelivered in Bilbao and the argument was about 5 hours, being the time difference between the 2 regions of delivery and redelivery. It was held that it was the actual period elapsed which is to be used as the relevant period which necessarily entails using the same time zone for delivery and redelivery, as adjusted.

7. The Black Falcon – 1990 NYPE Form (Steyn J.)

The initial period was for

“9 months, charterers’ option 3 months, charterers’ option further 3 months 15 days more or less on final period”.

There was a further addendum by which the parties agreed that the charter was to be extended
“In direct continuation for a period of 6 or 8 months 15 days more or less in charterers’ option exact period to be declared latest 21.12.1987.”

The charter was to continue either until 31st March 1988 or 31st May 1988.

On 22nd December 1987 the charterers indicated that they wished to exercise the option to continue the charter for a period of 8 months i.e until 31st May 1988. This was rejected by owners as being a late exercise of the option and owners treated it as a continuation for 6 months only, and the case was concerned with the differential between the market and charter rate and for what period. On 29th January 1988 the charterers sent the owners details of the vessel’s intended schedule showing that the vessel would leave Europe in March 1988 in order to perform a round voyage to India. The owners protested but the voyage was performed and the vessel was redelivered to the Owners on 23rd May 1988 in Europe. The owners claimed the difference between the market and the charterparty rate for the period 9th March to 23rd May. They declared that the last voyage was illegitimate. And this was found to be the case by the arbitrators: the last voyage was illegitimate and it would not have been completed by 14th April i.e. 31st March plus 15 days. They upheld owners’ claim for damages. The charterers were liable accordingly to pay the market rate from 16th March to 23rd May. Held (by Steyn J.) that the period was a true and the primary period of 6 months.

In circumstances where the owners undertook the illegitimate last voyage without waiving their rights to claim damages, the charterers’ obligation was to pay the charter rate until the last admissible date for redelivery and thereafter pay the market rate until actual redelivery. Nevertheless the Judge varied the Award and awarded the owners the market rate from 14th April until 23rd May. The reasoning being that the relevant interest was the owners’ ‘expectation interest’ which was to receive no more than the charter rate until 14th April if the charterers had availed themselves of the optional tolerance. He did not like the idea of owners getting a windfall.

8. The Peonia 1990 CA

The charter period on an NYPE Form dated 3rd April 1987 for a period of

“about minimum 10 months maximum 12 months time charter. Exact duration in charterers’ option…. Charterers have further option to complete last voyage within… trading limits”.

Delivery was on 11th June 1987. On 6th May 1988 the charterers concluded a voyage sub-charter to carry soya beans from the River Plate to Singapore and Butterworth, if this had been performed, the vessel would have been redelivered to owners no earlier than 19th July 1988. The time charter 12th month period expired on 11th June 1988. On 11th May the owners protested alleging that the proposed voyage was illegitimate and asked for voyage orders which would enable the vessel to be redelivered within 45 days i.e. by 25th June thereby giving effect to the expression “about” in the charter. On 17th May the owners called for voyage orders which would enable the vessel to be redelivered within the charter period or alternatively for payment of hire at an enhanced rate for the duration of the voyage outside the charter period. The charterers refused. It went to arbitration and the arbitrators held that the provision that the charterers were entitled to order the vessel to undertake a last voyage that started before the latest time for redelivery i.e. 11th June as extended by any tolerance to be implied by the use of the word “about”. The owners appealed. At first instance Saville J, held that charterers were not entitled to order the vessel to perform a voyage which could not reasonably be anticipated to be completed before about 11th June 1988 and the owners were entitled to refuse to comply with any such order – the appeal was allowed. The charterers appealed. The Court of Appeal held

(i) where a time charter stipulated a definite date for termination of the charter period without any express margin of tolerance the Court’s implied a reasonable margin of tolerance; where the parties had expressly agreed a margin of tolerance as by agreeing a minimum and maximum period no such margin of tolerance would be implied.

(ii) where the charterers gave orders for the employment of the vessel which could not reasonably be expected to be performed by the final terminal date, this was an illegitimate last voyage and the charterers were seeking to avail themselves of the services of the vessel at a time when the owner had never agreed to render such services. It was thus an order that the charterer was not entitled to give and in doing so, the charterer committed a breach of charterparty. If the owner complied with it, he would be entitled to payment of hire at the charterparty rate until redelivery of the vessel and, provided he did not waive the charterers’ breach, to damages being the difference between the charter and the market rate, for the period between the final terminal date and the redelivery. In this case, the additional option to complete the last voyage within “….trading limits” was a right by charterers to require the owners to complete a legitimate last voyage free of any liabilities and damages in respect of the period between the final terminal date and redelivery unless the unexpected delay was caused by charterers’ breach of contract – the reasoning here was that having agreed a degree of flexibility, it was not open to either party to have agreed impliedly or assume any further flexibility. The case is very much concerned with the additional option to the charterers to “complete last voyage within trading limits” and the simplest expression of this was at first instance by Saville J, as he then was, in which he found that the further option gave the charterers the right to complete a last legitimate voyage without being in breach but no right to send the vessel on an illegitimate last voyage. It was held in that case, strongly approved by the Court of Appeal, that this did not extend to giving the charterers the right to order the vessel to undertake a last voyage that started before the last time for redelivery, as extended by the use of the word “about”. That the was the approach of Mr Hamsher and Clifford Clark, the arbitrators and that was held to be wrong. On closer analysis in the Court of Appeal they go into some detail as to what is an illegitimate last voyage. If you did give such an illegitimate order that was a breach and an Owner would be entitled to damages for the period between the putative redelivery and the actual redelivery.

9. The World Symphony/World Renown 1992 CA

This was a case concerned with Shelltime 3 Form which provided

“Owners agree to let and charterers agree to hire the vessel for a period of 6 months 15 days more or less in charterers’ option commencing from the time and date of delivery of the vessel for the purpose of carrying crude oil”.

Additionally in clause 18 there was a provision that

“Not withstanding the provisions of clause 3…. should the vessel be upon a voyage at the expiry of the period of this charter the charterers shall have the use of the vessel at the same rate and conditions for such extended time as may be necessary to the completion of the round voyage on which he is engaged and her return to a port of redelivery a provided by this charter…”.

The charterers exercised their option for a 15 day extension and accordingly the latest date for redelivery was 2250 hours on 24th December 1988. On 4th October 1988 the “WORLD RENOWN” was en route to a laden voyage from Sirri to Rotterdam. On that day the charterers instructed the master that after completing discharge at Rotterdam he was to return to Sirri and load a further cargo for carriage to Rotterdam and Milford Haven. In the event the vessel was redelivered on 18th January 1989. The owners contended that this order amounted to a breach of charter because it could not be complied with consistently with redelivery of the vessel by 24th December 1988. It was held both by Hobhouse J and the Court of Appeal that the provisions of clause 18 prevailed over those of clause 3, specifically that the charterers were entitled to the use of the vessel at the same rate and condition as was necessary for completion of the round voyage on which she was engaged. Hobhouse J., at first instance, stated that the contemplation was that the vessel would be employed on a series of round voyages carrying cargoes of Iranian crude to consumer countries and returning to an Iranian loading port and the round voyage referred to in clause 18 must have been contemplated to be such a combination of a ballast and a laden voyage. In the Court of Appeal they held that the critical phrase was “Notwithstanding the provisions of clause 3 hereof” which pointed at the prevalence of clause 18 over clause 3.

10. The Gregos 1994 HL

This was a charter on the New York Produce Exchange Form for a period of about 50 to a maximum 70 days time charter in charterers’ option with redelivery to be at or off a port in the Gibraltar / Hamburg range. The vessel was delivered on 8th January and redelivery became due at the expiry of the 70 day period on 18th March with no further tolerance or margin. After proceeding to South America and ballasting, the vessel performed 2 voyages from Trombetas in Brazil carrying bauxite cargoes on the River Orinoco in Venezuela. On 9th February before the second voyage was completed, the charterers instructed the master to proceed from Matanzas to Palua, another port on the Orinoco and nearer the river mouth, to load a cargo of iron ore for delivery to Fos in France (the report wrongly states Italy). The vessel would then have been redelivered off Gibraltar on or before 18th March. By 25th February when the vessel completed discharge at Matanzas, the time-table had become unworkable. This was because another vessel had grounded in the river on 12th February and was obstructing the navigable channel between Palua and the river mouth . In the event the vessel proceeded to Palua and gave notice of readiness to load there at 1335 on 25th February. The owners were unwilling to proceed with the laden voyage to Fos. The charterers insisted that the orders were legitimate but the owners contended they were illegitimate and they would treat the charterers as being in repudiatory breach of the charter and withdraw the vessel. A without prejudice agreement was entered into and the vessel performed her voyage and she was redelivered on 26th March, 8 days late partly due to the time spent in negotiations between 25th and 29th February. The matter went to arbitration. The arbitrator found in favour of owners and the charterers appealed; the issues for decision being what date the legitimacy or otherwise of the voyage had to be established; was that the date when the order was given, as the charterers contended, or the date when it became effectual. The vessel was required to comply with it as the owners contended. Secondly, was there in this case a repudiatory breach of contract by the charterers which entitled the owners not only to refuse to comply with the order but also to bring the time charter to an end by accepting repudiation. It was held at first instance that the charterers did commit a breach of contract by failing to deliver at the end of the charterparty period and were liable in damages if the market exceeded the charter rate as well as for hire until redelivery took place. The charterers had 2 separate obligations. First, to give orders for a legitimate last voyage and secondly to redeliver the vessel at the end of the agreed charter period regardless of whether the orders for the last voyage were lawful or not. The charterers’ contention that the legitimacy of the last voyage should be established at the date when the order was given would be rejected. It would mean, if correct, that charterers could choose a time well in advance of the last voyage and the instruction, if reasonable at that time, would be binding on the vessel, regardless of subsequent events. The charterers’ obligation was to give a lawful order before the last voyage began; provided accepted in advance of the last voyage, that order would remain binding. On appeal eventually to the House of Lords:

(i) Whatever the charterers might order, service which fell outside the range encompassed by the owners, of the original promise to furnish the services of the vessel, was not one which he could be compelled to perform. The time for measuring of the service was primarily the time when the performance fell due.

(ii) The charterer was entitled to give orders in advance of the time of performance, thus he was entitled to give advance orders but the validity of those orders might change with the passage of time.

(iii) On this case the date of the assessment was 25th February and by that date the order originally permissible had become illegitimate.

(iv) The submission by the owners that the giving of an invalid order was by its nature a repudiatory breach would be rejected. There was no commercial necessity to hold that the issuing of an invalid order was an automatic ground of discharge and every reason for holding that it did not.

(v) The obligation to redeliver on time was an ‘ innominate term’ and a short delay in redelivery would not justify the termination of the contract. The owners’ submission that redelivery after the final date was a breach of a condition of the contract entitling the owner to treat himself as discharged would be rejected.

(vi) The original order had become ineffectual. The charterers were obliged by clause 11 to replace it with one they were entitled to give and it was clear that the charterers had no intention of giving a valid order. The charterers’ persistence in the original order which had been rendered invalid by the change of circumstances shows that they did not intend to perform their obligations under the charter. They evinced an intention to be no longer bound by the charter and this was an anticipatory breach which entitled the owners to treat the contract as ended – the appeal in favour of owners was accordingly allowed.

11. The Lendoudis Evangelos 1996- Longmore J

One time charter trip “duration about 70/80 days without guarantee”
– the effect of the words ‘without guarantee’ – obligation of good faith in making estimate of duration of the trip in that case the test was whether the charterers generally believed, at the time of fixing that the trip would last between 70 and 80 days. [In fact the voyage lasted 103 days 12 hours and 40 minutes]
Note the focus on the correct the test to be applied. The judge was quite searching in his analysis of this. It was not, as was suggested by the arbitrator, (purporting to follow the decision of Mr Justice Leggatt in Benship v. Deemand Shipping – a 1988 case only reported in the LMLN ) that the test of good faith was whether the charterers’ original estimate was reasonably made. That is not the test of good faith at all “If I wrote a formula to test good faith myself, I would say that all it requires is that the charterers’ genuinely believed at the time of fixing that the trip would last between 70 and 80 days”.

12. Useful definitions arising from the above

(i) A legitimate last voyage – a voyage which it is reasonably expected will be completed by the end of the charterparty period. The owner must obey the directions or orders if the vessel is afterwards delayed by matters for which no party is responsible, the charterparty continues even though it extends beyond the charterparty period and hire is payable at the charterparty rate even though the market has gone up or down.

(ii) An illegitimate last voyage is one which cannot reasonably be expected to complete within the charterparty period and the owner can refuse those orders and call for further legitimate orders.

13. Other principles:
1. Look at the wording of the period ( remember the approach of the arbitrator in the Sanko Honour which Hobhouse J was fairly damning of) don’t try to cut through to get what you may think to be a commercially sensible result
2. Does the wording provide for a fixed period (eg 6 or 12 months) in which case some flexibility will automatically be implied- Gray –v Christie (The Blytheville)
3. Does the wording provide for a range eg’ 4 to 6 months’ or ‘about 4 to 6 months’ ( The Democritos, the Johny & the Gregos ) and even ‘from May 15/31, until 15/31 October’ ( as in Watson –v- Merryweather) – remember in that case it was the addition of the handwritten wording which the judge felt ousted the implication of a margin.
4. Does the wording exclude a margin – eg using a range prefaced by the words ‘minimum… maximum’- the Mareva AS 1977 Also where the words “20 days more or less”.. (the Dione) are included – the margin is considered to be built into the agreed period.
5. Effect of the word ‘about’ qualifying the period- slightly confusing state of authorities – Lord Reid in the London Explorer thought he could look at at the deleted word to arrive at the draftsman’s intention. Another Judge, Staughton LJ did not bother to consider the impact of the deletion of the word ‘about’ from the printed form.
6. What margin will be implied – tends to be linked to the original charter period The Democritos – the arbitrators allowed a further 5 days on the original wording of ‘about 4 to 6 months’. In the Berge Tasta, Donaldson MR allowed an overlap of 8.4 days in a case concerned with a consecutive voyage charter for 30 months from 25 April 1969, redelivery within 10 or 11 days of 25th October 1971 was just within a reasonable margin. In the Dione, the arbitrators allowed 8.4 days beyond the original period of ‘6 Months 20 days’.

14. Wider Issues – the effect of the words without guarantee – see The “Lipa” and The “Lendoudis Evangelos”.

Both cases rely on the old authority of Japy Freres v. Sutherland [1921] 26 Commercial Cases 227 and particularly The “Lipa” has attracted criticism. The addition of the words “without guarantee” seems to vitiate any meaning being given to the vessel’s details. The arbitrators in that case, the Lipa, Timothy Rayment and George Lugg held that rather than vitiate any meaning being given to these details, the words should really imply a greater tolerance than otherwise would have been there. That was held to be incorrect by Mr Justice Smith which has caused some consternation in the broking community. It does lend itself to what might be called sharp practice in that having spent pages trying to agree details of a vessel’s description all of that will amount to nothing by the addition of the phrase at the end of that tucked away somewhere “all details given in good faith but without guarantee”. That case was concerned with the description of the vessel’s speed and consumption. The arbitrators preferred that some meaning had to be given to the details completed in the charterparty and they considered that the addition of the words “without guarantee” prevented the owners from being held to an absolute warranty but they did not rid them of all obligations from owners’ shoulders. Against that, Mr Justice Smith held that the addition of the phrase ‘without guarantee’ meant that the provision was not a warranty at all.

DAVID HUGHES