Late redelivery under time charters has not been uncommon. It may cause a shipowner to suffer loss during the period of overrun and market damages for the loss of a follow-on fixture due to missing of the cancelling date. In The Achilleas, [2008] UKHL 48, the House of Lords set out that damages for the loss of a repositioning fixture is not recoverable as the charterer should not be regarded as assuming responsibility for damages that were unquantifiable, unpredictable, uncontrollable and disproportionate.

Yet the case has established an approach where such damages world be recoverable if: 1) the charterer has been warned by the shipowner at the time of the contract that there will be a subsequent charter; 2) the charterer insists on illegitimate orders knowing that the shipowner will have a subsequent charter; 3) the charterer reasonably foresees that the late redelivery will place the ship in poor market conditions.

The recent London Arbitration 1/23 has further addressed whether the damages suffered by a shipowner in respect of the time charterer’s breach in redelivering the vessel late could be recovered. The case involved a head time charter and a sub time charter on similar terms with redelivery to be on or before 1 July 2021 in both cases. Charterers were to give various etas as to the vessel’s redelivery date and port, and clause 119 provided that if an order for a voyage ending after the maximum period were given the owner should have the option:

“(i) to refuse the order and require a substitute order allowing timely redelivery of the vessel,ꞏ or

(ii) to perform the order without prejudice to their right to claim damages, including consequential damages, for breach of charter in case of late redelivery of the vessel.

In any event, for the number of days by which the maximum period stipulated in this charter party is exceeded, the Charterers shall pay the prevailing market rate if this is higher than the hire rate agreed in this charter party.”

At the time of fixing the time charterers were aware of the importance of the redelivery date to the owners who were planning to drydock the vessel shortly afterwards as the vessel as due for her special class survey on 6 July, although the parties would also have known that there was some flexibility on dates because the owners would have been able to obtain a short extension of the validity of the class certificates.. Owners intended to obtain a short fixture to get the vessel near to the drydocking port to come into effect after the end of the two time charters on 1 July 2021.

Delays occurred at the discharge port and the follow-on fixture owners negotiated on 25 June 2021 was cancelled on 6 July.  Discharge eventually completed on 14 July 2021 and the vessel then sailed to the drydocking shipyard arriving there on 22 July 2021. The owners claimed that the charterers were in breach of charter on the following grounds:

(a) the vessel was redelivered late;

(b) the charterers failed to comply with their undertakings in clause 119;

(c) the charterers breached an implied term that any notices of expected redelivery (i) would be given honestly and in good faith, and (ii) would be based on objectively reasonable grounds following proper inquiries made by the charterers.

The tribunal concluded that the owners were entitled to recover the damages claimed under clause 119 and were entitled to an award in the amount of US$306,617.19 (see the judgement as attached).

By looking into the case, the author would like to point out:

First, the decision in this case was made depending very much on the analysis of clause 119 of the charter, which provides that the owners shall be entitled to claim damages for the charterers’ late redelivery, including consequential damages, which was construed by the tribunal to include the owners’ losses of a profitable following fixture. As can be seen, it is preferable for a party who is to be liable for breach of a contract not to recognise indemnity for consequential damages.

Second, can charterers rely on The Achilleas to be responsible only for the difference between the market and charter rate of hire for the period of overrun as long as there’s no agreement on consequential damages?  The answer is negative. The tribunal held that the charterers’ actual knowledge was to be distinguished from the situation in The Achilleas. The owners’ losses claimed were within the second limb of Hadley v Baxendale since the charterers were made aware that the vessel’s certificates would expire soon and can reasonably foresee a subsequent voyage.

Third, redelivery notice. In practice, charterers are used to including various restrictions in the notice such as WP, WOG, etc. In this case, unsurprisingly, the charterers relied on these restrictive phrases to argue that the notice did not give rise to any claim by the shipowner. However, the tribunal held that The Zenovia did not apply and such phrases were not being used to suggest that the contents of the statement could not be relied upon and did not negate the requirement that the notice be given on reasonable grounds. It can be seen that the tribunal insists that a redelivery notice should be given in good faith and on reasonable grounds, which in a way renders protection on owners.

For more information, please contact Managers of the Association.

Attachments:

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Lloyd's_Maritime_Law_Newsletter__London_Arbitration_1_23.pdf	122 kB