The following guide explores the legal implications of late re-delivery of time-chartered vessels, examining charterers’ liability and the ways in which this can be mitigated. This is a common area of dispute and for more detail, please reach out to the Club’s Legal Costs Cover (LCC) department.
What is the general position with regards to re-delivery?
When a time-chartered vessel is re-delivered late by the charterers, the clear and established legal position is that charterers are liable to owners for damages. This applies even if the last voyage orders were legitimate, as it does not change the fact that late re-delivery is a breach of contract. Charterers can only exclude liability for such a breach in instances where there is a relevant contractual exclusion or if the late re-delivery was caused by the owners.
A re-delivery clause will usually set out the requirements for re-delivery notices and the consequences of late re-delivery. A standard charterparty provision will typically stipulate that damages are calculated on the basis of the prevailing market rates for any period exceeding the termination or re-delivery date, if such market rates are higher than the rates agreed in the charterparty. The period exceeding the contractual re-delivery or termination date is known as the overrun period.
What can charterers do?
Charterers may be tempted to delete the charterparty reference to the “higher market rates for any time exceeding the agreed period” to avoid being liable for damages for higher market rates in the event of late delivery.
In addition to deleting the provision on damages, charterers may also argue that certain wording in the charterparty stating, “charterers shall have the use of the vessel to enable them to complete the voyage provided …", can be construed as allowing them to exclude their liability for damages in the event of late re-delivery, since it permits an action that would otherwise not be allowed. Notably, while a shipowner is not obliged to follow illegitimate voyage orders, if they do, they are still entitled to damages for any resulting losses[1] . By applying a similar reasoning to the charterers’ argument - that they were permitted to take an action they otherwise would not - it could be argued that this may not imply that charterers are not liable in damages for any losses incurred as a result.
Deletion of words in charterparties
While the general rule is that the deletions should not be taken into consideration by the Court or Tribunal when construing a contract, case law highlights circumstances when the deletion of words may be taken into account.
In the Narandas-Girdhar v. Bradstock, it was held that deletions may be considered only if there is some ambiguity in the words which the parties have expressly agreed and this ambiguity could be resolved with the assistance of the deletions[2]. Furthermore, in the Golden Leader[3], it was held that the deletion of words does not mean that the parties have agreed the opposite. Quoting the Judge’s words: “it seems to me quite another thing to say that the deletion itself has any contractual significance; or by deleting a provision in a contract the parties must be deemed to have agreed the converse”.
Given the case law, it appears that even if the charterparty does not say anything at all about charterers’ potential liabilities in case of late re-delivery, the established legal position remains that charterers will be liable in damages in any event.
How are damages for late re-delivery calculated?
Late re-delivery damages are usually quantified as the difference between the contractually agreed charter hire rate and the market rate for the overrun period. This period runs from the latest time at which the vessel could have lawfully been re-delivered to the time at which she was in fact re-delivered.
The key question which usually arises in such cases is which relevant market should be taken into consideration., It is often assumed that the case of The Johnny[4] establishes a general principle for time charterparties. The rule under this case concerning the relevant market rate is that it should correspond to a charter of similar length to the one from which the vessel was re-delivered late.
Significantly though, the decision in The Johnny was based on the case’s specific facts, which involved a BALTIME charterparty incorporating bespoke wording. Therefore, it could be argued that The Johnny does not necessarily establish a broad principle applicable to all late re-delivery cases. It can be argued it remains uncertain whether an attempt to distinguish The Johnny from cases where the words referring to “the higher market rates” have been deleted would have reasonable prospects of success because of the reasons discussed in this article.
While the decision on the overrun days will usually be a matter of facts, the parties may find it more difficult to reach an agreement as to the prevailing hire market. In the event of a dispute between the parties, the decision on the late re-delivery damages would ultimately rely on expert evidence regarding what a reasonable owner would have done if charterers had provided all the necessary and accurate re-delivery notices and re-delivered at the latest possible legitimate moment.
Conclusion
While parties may seek to avoid the consequences of breaching legal principles by amending standard charterparty wording to incorporate clear exclusions, they should be reminded that the construction of these agreements will ultimately depend on each Court or Tribunal. These bodies may not be willing to deviate from well-defined and established principles and/or rules of law.
Our Members are reminded that if they are concerned about a legal issue arising out of the points discussed in this article, they may be entitled to some initial legal advice free of charge, from a select panel of external lawyers under the Club’s Legal Advice Benefit . If Members wish to take advantage of this benefit, please contact the Claims team to discuss.
[1] the Kanchenjunga [1990] 1 Lloyd’s Rep. 391
[2] Narandas-Girdhar v. Bradstock [2016] EWCA
[3] Golden Leader [1980] 2 Lloyd’s Rep. 573
[4] The Johnny [1977] 2 Lloyd’s Rep. 1