Time charters – last voyage and related issues

Professor Martin DaviesDirector, Tulane Maritime Law Center, New

OrleansIntertanko Tanker Chartering Seminar

Tokyo, 12 May 2009

OutlineOverlap/underlap – how long is the charter

period?Late redelivery

Legitimate last voyageContractual extensi0ns of charterer’s right

Early redelivery

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Overlap/underlapA reasonable overlap/underlap is implied in charters

for a fixed period (now unusual)Charter may provide for overlap/underlap

“about 12 months”“12 months, 15 days more or less”“11 months minimum, 13 months maximum”

If overlap/underlap is specifically stated, no additional “reasonable” toleranceThe Dione [1975] 1 Lloyd’s Rep. 115Prebensens Damps A/S v. Munson Line, 258 F. 227 (2d

Cir. 1919)But….

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Overlap/underlapAn implied additional tolerance will be added

to the stated overlap/underlap if the charter so providesThe Peonia [1991] 1 Lloyd’s Rep. 100“about minimum 10 months, maximum 12

months”Word “about” added “an additional margin or

tolerance”(Practice tip: Don’t repeat yourself; don’t say

things twice when you only mean it once.)

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Overlap/underlapRenewal of a charter term – one or two

overlaps?The Aspa Maria [1976] 2 Lloyd’s Rep. 643

“6 months, 30 days more or less”Option to renew “for a further six months, 30

days”12 months, 60 days or 12 months, 30 days?CA held: 12 months, 30 daysOverlap period does not extend charter period,

merely creates a period of tolerance for redelivery

But… 5

Overlap/underlapOther clauses may extend the charter period

Overlap is then added to the end of the extended period

The Kriti Akti [2004] 1 Lloyd’s Rep. 712“11 months, 15 days more or less”Off-hire clause gave charterer the option to add off-

hire periods to the charter periodCharterer added 36 days of off-hire to the charter

period; wanted 15 days overlap as wellCA held: 11 months, 51 days36 days extended charter period, 15 days tolerance

in redelivery6

Late redeliveryWhen the market rate is higher than the contract rate“Final terminal date” (FTD)

The Peonia, per Bingham LJThe end of the overlap period, stated and/or implied

Legitimate last voyageThere is a reasonable expectation when the order is

given that the voyage will be completed before the FTD(Unless charter gives charterer more extensive right –

more on that later)LLV is completed at the contract rate, not the market

rate

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Illegitimate last voyageThe order itself is probably a breach of

contract by the chartererWhether or not the order is a breach of

contract, owner/master is entitled to refuse to accept itDemand an alternative, legitimate last voyage

orderIf charterer insists on the order despite the

owner’s request, that is definitely a repudiatory breachOwner entitled to bring the contract to an end

at that timeThe Gregos [1994] 1 Lloyd’s Rep 1, 10 per

Lord Mustill

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Legitimate becomes illegitimateWhat happens when a legitimate order becomes

illegitimate?Last voyage order is legitimate when the order is given

Reasonable expectation at that time of completion before FTD

Illegitimate when the time for performance comesNo longer any reasonable expectation of completion before

FTD (Therefore, some unexpected delay between giving of order

and time for performance)Can charterer insist on completion of the voyage at the

contract rate because the order was legitimate when given?

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Legitimate becomes illegitimateThe Gregos [1994] 1 Lloyd’s Rep. 1

Charterer obliged to give a new order, replacing the original one with an order for a voyage reasonably likely to be completed before FTD

If charterer refused, owner can treat charter as at an end at that moment and perform no further voyage at all

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Accepting the illegitimateOwner accepts illegitimate last voyage order

but reserves right to claim damagesCharterer must pay market rate from…

FTD?Date when redelivery would actually have

taken place if illegitimate last voyage had not been performed? Usually earlier than FTD

The Black Falcon [1991] 1 Lloyd’s Rep. 77: from FTD – charterer gets ship at contract rate until FTD

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Delayed LLVWhat happens if an LLV is not completed by the FTD?

Some unexpected delay on the last voyageCharterer still in breach, even if neither party is

responsible for the delayThe PeoniaOwner cannot complain if it is responsible for the delay

Charter continues until redelivery but charterer must pay damagesMarket minus contract from FTD until redeliveryIf contract is above market, charterer must pay contract

rate until redelivery because contract continues until then (The London Explorer [1972] AC 1)

Unless the charter gives charterer a more far-reaching right re last voyage orders…

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Shelltime 3Clause 3: period and trading limitsClause 18: “Notwithstanding the provisions

of clause 3 hereof, should the vessel be upon a voyage at the expiry of the period of this charter, charterers shall have the use of the vessel at the same rate and conditions for such extended time as may be necessary for the completion of the round voyage on which she is engaged and her return to a port of redelivery as provided by this charter…”

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The Kriti Akti (2004)Remember that CA held that “the period of

the charter” was 11 months, 36 days11 months plus 36 days’ worth of off-hire time

added at charterer’s optionFTD was 11 months plus 51 days

11 months + 36 days off-hire + 15 days overlapCharterer ordered Kriti Akti on voyage that

would not be completed until well after FTDOrder given after basic 11 months had expired

Did “the period of this charter” mean 11 months, 11 months + 36 days, or 11 months + 51 days?

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The Kriti Akti (2004)“The period of this charter” meant 11 months

+ 51 daysAs a general principle, charterer is entitled to

give orders during the overlap period for an LLV

In Shelltime 3, cl. 18 extended the charterer’s right to give orders to include orders for what would otherwise be an ILV

“Owners are thereby exposed to a final round voyage of no fixed length, which it is clear from the outset will extend very considerably beyond the final terminal date.” Mance LJ, [2004] 1 Lloyd’s Rep. 712, 71815

Similar results in New YorkIn re Sun Overseas Transport Ltd and

Amerada Hess Shipping Corp. (The Pacific Sun), 1983 AMC 830 (N.Y. Arb. 1982)

In re Gotco N.V. and Texaco Panama, Inc. (The Narnian Sea), 1991 AMC 274 (N.Y. Arb. 1990)

Similar results re similar clause in Texacotime 2 (cl. 11)

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Shelltime 4Clause 19: “If at the time this charter would

otherwise terminate in accordance with Clause 4 the vessel is on a ballast voyage to a port of redelivery or is upon a laden voyage, charterers shall continue to have the use of the vessel at the same rate and conditions as stated herein for as long as necessary to complete such ballast voyage, or to complete such laden voyage and return to a port of redelivery as provided by this charter as the case may be.”

Narrower than Shelltime 3, cl. 1817

The Ambor/The OnceMarimpex v. Compagnie de Gestion et d’Exploitation

Ltd [2001] 1 All E.R. (Comm.) 182Charter period 12 months +/- 20 days, with an

additional option of 6 monthsFTD was 17 February 1989

On 16 December 1988 (during basic 12-month period), charterers gave voyage orders that contemplated redelivery on about 7 March 1989

Owners ordered master not to complyCharterers redelivered on 14 January 1989, within

overlap/underlapWas this order legitimate under Shelltime 4, cl. 19?

Same result as Shelltime 3, cl. 18, or different?

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The Ambor/The OnceClause 19 not clear enough or specific

enough to protect charterer from consequences of ordering what would otherwise be an ILV

Shelltime 4, cl. 19 was unlike Shelltime 3, cl. 18Did not begin with the words “Notwithstanding

the provisions of clause 3 hereof…”Only applies when vessel is on a voyage

(laden or ballast to redelivery) at FTDDoes not extend charterer’s right to order

vessel on last voyage beyond FTD19

Similar results in New YorkIn re Addison Shipping & Trading S.A. and

Bayoil Supply and Trading Ltd (The Sea World), S.M.A. Arb. 3791 (June 10, 2003)

In re U.S. Titan, Inc. and Iino Kaiun Kaisha Ltd (The Seto Bride), S.M.A. Arb. 3149 (Feb. 15, 1995)

Shelltime 4, cl. 19 interpreted in same way as in The Ambor/The Once“Clause 19 is not intended to legitimize an

illegitimate last voyage, but to cover what happens due to an unforeseeable delay once a last voyage has already begun.” (The Seto Bride) 20

Practice tipIf you are an owner, use Shelltime 4 (or at

least cl. 19)If you are a charterer, use Shelltime 3 (or at

least cl. 18)

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Early redeliveryWhen the contract rate is higher than the

market rateUnderlap – earliest possible redeliveryRedelivery before underlap is a repudiatory

breach of charterOwner does not want to accept that

repudiation as bringing contract to an endOwner only entitled to affirm contract after

repudiatory breach if it has a “legitimate interest” in keeping the contract alive

Is the owner’s interest in continuing to receive contract hire a “legitimate interest”?

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Early redeliveryThe Dynamic [2003] 2 Lloyd’s Rep. 693Principles governing exception to general rule that

owner has an option whether to accept repudatiory breach as terminatingBurden is on charterer to show that owner has no

legitimate interest in performing contract rather than claiming damages

Burden not discharged merely by showing that the benefit to the owner is small compared to the loss to the charterer

Owner can only be forced to accept repudiatory redelivery in “extreme cases” – where damages would be an adequate remedy and where an election to keep the contract alive would be unreasonable

Whether charterer entitled to redeliver early under trip time charter when vessel arrested (by charterer) before reaching redelivery point

Remitted to arbitrators

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