“Timely redelivery is just as important as punctual delivery.” 1
The standard clauses in dry cargo Charterparties invariably require charterers to give scheduled delivery and redelivery notices in honest good faith and on reasonable grounds. Their actual legal effect is surprisingly limited and vessel operators who expect redelivery notices to facilitate proper performance of the charterparty2 may often be unaware that English law says there is no obligation on charterers not to deliberately do anything to prevent the dates in their valid notices from being met3 .
Notices invariably incorporate qualifying reservations that allow charterers to change their minds and cancel an anticipated redelivery date. The inevitable dilemmas and uncertainties caused by such notices can significantly affect the profitability of the ship’s next employment.4 One possible solution is to enhance and tighten up their limited legal effects by making it a contractual obligation for both parties at delivery and redelivery to keep each other closely informed about possible ship itinerary changes.
Employment and redelivery
A time charterer has two main duties, being 1 to employ the ship in the charter service until the end of the minimum charterparty period and 2 to return the ship to the disposal of the shipowner no later than at the end of the maximum charterparty period and otherwise in accordance with the terms of the charterparty.5
Redelivery of the ship must take place (a) at the stipulated place (or within the range of places) (b) pursuant to valid notices of the expected time and port of redelivery and (c) in the same good order and condition as at delivery, ordinary wear and tear excepted.
Redelivery notices
Clauses in the standard form charterparties invariably oblige1 owners to notify charterers when they expect the ship to be ready at the beginning of the charter and2 charterers to notify owners when and where and where they expect the ship will be given back before the very end of the charter:
- The NYPE 1946 form requires written notices in advance at specified intervals with anticipated delivery/redelivery dates and redelivery places:
“The Owners shall give the Charterers not less than ……….. days notice of expected date of delivery.” (Clause 2)
“The Charterers shall give the Owners not less than …………… days notice of the Vessel’s expected date and probable port of redelivery.” (Clause 10)
- The Baltime form requires charterers to give one minimum 10 days advance notice of the port at which and on about which day the vessel will be redelivered.
Charterers’ contractual obligation is to give the full range of honest/in good faith/on reasonable grounds redelivery notices at the (scheduled) time(s) which is (are) appropriate for the proper performance of the contract. Notices are non-contractual and invalid - and are characterised as a breach of the charterparty6 - if charterers give inter alia a short notice (for example for 3 instead of 7 days)7 or they do not serve any notice at all:8
- the breach is anticipatory9 before, and becomes actual on, the date of redelivery.
- short notice is either a breach that lies in the charterer’s failure to give a longer notice (and thus to redeliver at a later date) or in the failure to give notice at an earlier date.10
- charterers are allowed to redeliver/owners are obliged to accept redelivery even when redelivery notice(s) is/are invalid.
- owners’ duty to mitigate damages only starts after the date of redelivery.
- a party is not allowed to terminate a charterparty unless the other party commits an anticipatory breach that is sufficiently serious to be classified as repudiatory.
- owners’ loss/damages is the money needed to put them back in the position they would have been in if the required notice had been given timeously by charterers.
In a classic dispute over who may “ …. take advantage of an unexpected opportunity to fix the vessel in a rising market”,11 the owners of the Zenovia claimed compensation when, for purely commercial reasons, charterers changed their minds about the date of redelivery stated in their redelivery notice.
The Zenovia 12
The precise legal effects of redelivery notices was judicially considered in London arbitration and on appeal in the English High Court:
- the charterparty required charterers to give "…. not less than 30 days followed by 20/15/10/7 days notice of approximate redelivery date and intended port thereafter 5/3/2/1 days definite notice of redelivery date and port":
- charterers gave a 30-day notice “of redelivery … at … 1 sp China on about 4 Nov 2007 basis agw, wp, wog, uce …”, namely “all going well, weather permitting,13 without guarantee, unforeseen circumstances excepted”.
- owners fixed new employment with a laycan of 1/11 November 2007.
- charterers decided to squeeze in further employment before the end of the charter: “Plse note that we hereby have to revise the date of redelivery to owners to abt Nov 20th within the range of redelivery.”
- owners had already fixed the vessel for the next fixture and insisted that the first notice was illegitimate and the vessel must be redelivered at the end of the voyage to China.
- charterers insisted that they were acting within their legal rights to use the full period given by the contract.
- owners claimed that they were entitled to treat the vessel as redelivered on 2 November 2007, that charterers’ insistence was repudiatory conduct and that they were entitled to withdraw the vessel.
- charterers claimed approx. US$750,000 for wrongful charterparty termination and vessel withdrawal.
Owners’ promissory estoppel and implied term arguments14 succeeded in the arbitration on the basis that:
(i) charterers gave a binding promise that the vessel would be redelivered at the end of a voyage to China, including a promise not to exercise their right to redeliver the vessel later, at the very end of the charter period,
and
(ii) charterers breached an implied term of the contract. Based on the analogy of owners’ implied duty to use reasonable care to meet the date contained in their statements about when a vessel is ready to load,15 the arbitrators decided (“…. without overt consideration whether the usual tests for the implication of contractual terms are satisfied ….16” ) that when charterers tender an approximate date of redelivery in a notice they “… are obliged not to do anything deliberately which prevents that approximate date being met”.
On appeal, the High Court judge resorted to the application of contract law rules to re-consider inter alia (a) the effects of the qualifying words “without guarantee” and “without prejudice” (b) the making of a promise and (c) the existence of an implied term. The arbitration award was aside on the basis that inter alia:
(a) the words “without prejudice” meant that what charterers had said “ …. could not usually be relied upon unless it led to a binding agreement”17. (In this regard, the arbitrators had – correctly - decided that the words "without guarantee" “…. negative the assumption of any contractual content to the 30 days of the notice ….18".)
(b) “ …. by the totality of the words and conduct attributed to them ….” charterers did not say anything that affected their legal relationship with owners. They did not unequivocally promise that the voyage to China would be the last voyage under the charter and did not abandon their right to retain the ship on charter until the last permitted date of 22 November19:
“Nothing said or done by the charterers contained or amounted to a promise as to what they would do in the future”.20
(c) there was no basis for implying a term (that says charterers cannot change their minds about the date given in their approximate redelivery notices)21 because (a) such a term was not necessary for the contract to work and (b) it was not obvious that the parties would have been bound to agree to such a term had it been suggested to them.22
Comment
This decision was not appealed and the limited legal implications for redelivery notices are being applied in the English courts and London arbitration. Until there is a successful legal challenge, owners and charterers “can escape the binding effect of notices given by them by qualifying them as “without guarantee” or “without prejudice”.23 With regard to redelivery, charterers can return the ship on a date other than the stated date. Provided they are given honestly and in good faith/accurately, charterers’ notices containing the usual reservations are neither an undertaking to redeliver on the date in the notice nor a promise that the ship will not encounter any delay during the remaining charter period.24
The Great Creation 25
Charterers admitted that their purported “approximate 20-day” notice was a breach of their duty to follow the scheduled notice provisions of the charterparty. Owners claimed damages for this breach (and not on the basis that charterers changed their minds and cancelled the redelivery date).26
The English High Court (on appeal from an arbitration) was asked to determine the question “Where a time charterparty provides for charterers to give notice of redelivery, what is the correct approach to damages when redelivery takes place with insufficient notice(s)?” Although the arbitrators had correctly considered the assessment of damages (including remoteness of loss) principles in The Achilleas and The Sylvia, the court found that it was wrong to characterise the loss/damages as one relating to a notional voyage fixed on the basis of a failure to provide a contractual notice on 21 March.
Instead, the arbitrators should have characterised “ …. the claim as one analogous to early redelivery under the Charterparty”27 and considered charterers’ breach to be the failure to “…. redeliver in accordance with a contractual notice given on [date A] ….” and not the failure to “… redeliver on [date B] following a contractual notice given on [date C]”.28
Comment
The relevant conditions (by reference to an intention/absence of attention to redeliver on the notified date) for determining the ordinary measure of damages include1 either (a) charterers’ failure to give a longer notice and therefore to redeliver at a later date or (b) charterers’ failure to give notice at an earlier date and2 the hire that owners lost from the date of actual redelivery to the date on which the approximate notice expired and the vessel should have been redelivered in accordance with the service of compliant notices.29
London Arbitration 13/2230
The charterers admitted to being in breach when a last-minute decision by sub-charterers not to perform a further voyage forced them to redeliver the ship early to owners (who in turn redelivered to head owners). Owners demanded damages for the lost the opportunity to find additional short-term employment which would have been possible if proper notice had been given.
Damages were awarded on the basis that owners were entitled to be put back into the position they would have been in as if the required notice had been given the requisite number of days prior to the date of redelivery.
Comment
The proper basis for calculating owners’ damages after an invalid notice and when charterers have no intention of redelivering the ship on the date on which they said redelivery should have been given is “…. on the basis that if the contract had been performed the charterers would have redelivered the vessel in accordance with a contractual 20-day redelivery notice given on ………………..”.31
London Arbitration 1/23 32
When the charterers changed their redelivery dates in revised notices - and redelivered the ship late - owners claimed inter alia that there was a breach of clause 119, including (in the alternative) an implied charterparty term (as opposed to a binding notice) that charterers must give notices in good faith and on reasonable grounds for their redelivery estimates. Owners claimed damages for the loss of hire and consumed bunkers.
Notwithstanding that they admitted a late redelivery after failing to give reasonable date estimates, charterers challenged the damages for being too remote and denied liability for owners’ alternative cause of action on the grounds that their “agw”, “wp” and “ucae” notices were non-actionable. Owners’ main arguments succeeded and damages were awarded to them for breach of the charterparty clause that prohibited charterers from ordering the ship to commence a voyage which could not reasonably be expected to be completed in time to allow redelivery within the maximum charterparty period.
Comment
A charterer’s notice is not valid if it does not satisfy inter alia the “reasonable grounds” requirement. The Zenovia will only apply to protect charterers if they employ sufficient qualifying language to negate the reasonable grounds requirement and make their notices non-actionable.
The legal uncertainties and dilemmas
- On the one hand, shipowners can insist on charterers giving them valid redelivery notices that are honest/good faith/accurate/scheduled notices of approximate redelivery:
“Proper performance of the charter may mean in one case service of contractual notices in respect of the actual date of delivery whilst in another it can mean service of contractual notices at the date when short notice was given, resulting in later redelivery.” 33
- On the other hand, unless owners object/reject them, qualified redelivery allow charterers to change their minds and keep the ship beyond the notified date but within the last date for redelivery under the charterparty.
- It is arguable that redelivery notices are not given in good faith/honestly/on reasonable grounds when their clear wording expressly indicates that the contents cannot be relied upon.34 One way for the parties to avoid this practice and the inevitable dilemmas35 is to make sure that their delivery/redelivery notices will operate with the enhanced legal effect (as regards redelivery) of being “…. a statement or promise that there will be no further employment orders under the charter that are inconsistent, when given, with redelivery in accordance with the notice.”36
The revised standard delivery and redelivery clauses
Reworded and additional clauses in BIMCO’s standard NYPE 2015 form37 are part of an attempt an attempt to avoid “‘rider clauses’ to accommodate changes in ship operations, legal rules, and the parties’ own bargaining strength”, to rectify perceived imbalances in the older (but still popular) dry cargo charterparty forms and to take account of modern commercial practices and recent legal developments.38
The tightened up delivery and redelivery clauses mirror - and balance - the parties’ respective obligations in order to stipulate clearly and with a greater degree of certainty when a change of plan that prevents redelivery from taking place on or before the notified date might become a clear breach of the contract:
Clause 2(d) The owners shall keep the Charterers informed of the Vessel’s itinerary. Prior to the arrival of the Vessel at the delivery port or place, the Owners shall serve the Charterers with …….. days approximate and ………….. days definite notices of the Vessel’s delivery. Following the tender of any such notice the Owners shall give or allow to be given to the Vessel only such further employment orders, if any, as are reasonably expected when given to allow delivery to occur on or before the date notified. The Owners shall give the Charterers and/or their local agents notice of delivery when the Vessel is in a position to come on hire. Vessel itinerary prior to delivery: …………………………”
Clause 4 (b) The Charterers shall keep the Owners informed of the Vessel’s itinerary. Prior to the arrival of the Vessel at the redelivery port or place, the Charterers shall serve the Owners with …… days approximate and ….. days definite notices of the Vessel’s redelivery. Following the tender of any such notices the Charterers shall give or allow to be given to the Vessel only such further employment orders, if any, as are reasonably expected when given to allow redelivery to occur on or before the date notified.”
These clauses expressly preclude charterers from giving the ship any orders after service of the first redelivery notice:
regarding delivery: “ …. instead of just a series of notices to be given by the owners prior to the “expected date of delivery””, owners must give charterers an initial itinerary and then (in addition to the notice of delivery requirements) advise them of any subsequent changes to that itinerary:39
“The final sentence of sub-clause (d) is triggered by the giving of the first notice of delivery and applies to all subsequent notices. Its purpose is to ensure that any orders for the further employment of the ship given prior to delivery can be reasonably expected to allow delivery by the date notified by the owners to the charterers.”40
- regarding re-delivery: the incorporation of an extra obligation to keep owners closely informed about possible changes (in line with the concept of “legitimate/illegitimate final voyage orders contained in other more recent time charterparty forms, for example GENTIME)41 is in addition to charterers’ obligations to (a) tender a series of approximate and definite notices of redelivery that are honest and based on reasonable grounds and (b) give legitimate last voyage orders by making sure that the ship is in such a position that it can be reasonably expected that she will be redelivered on the notified date. All of this means that if charterers do not 1 tender a definite (namely, non-provisional) latest notice and 2 use reasonable diligence to redeliver the ship by the date in the notification:
(i) it is not permitted to give (and the owners are not bound to follow) further employment orders that are contrary to the orders that have already been given, and
(ii) the owners will have the right to repudiate/terminate the charterparty and/or to recover damages depending on the consequences of the breach:
(a) charterers’ duty to keep the owners informed will be treated as an innominate term which means (for what it may be worth) that owners will only be allowed to terminate the charterparty and withdraw the vessel if the consequences of the breach are sufficiently serious that they go to the root of the contract.
(b) charterers’ duty to give legitimate orders will also be treated as an innominate term. The consequences will also depend on the severity of the breach. For example, if charterers refuse to replace their illegitimate last order with a new, legitimate, one, their conduct may demonstrate that they do not intend to perform their contract obligations and the owners may be allowed to treat the contract as terminated by repudiation (and to claim damages). If owners decide to comply with an illegitimate last voyage order they can claim hire at the rate in the charterparty until redelivery plus damages for late redelivery (based on the difference between the contract and the market rate for the excess period).
The exercise of a right to cancel does not deprive owners of the right to damages for any prior breach committed by charterers. The measure of damages is (subject to the usual rules on remoteness) the amount that is required to place them in the position in which they would have been if notice as required had been given the correct number of days prior to redelivery.
Although this redelivery clause protects owners’ rights to have their ships redelivered on time (in return for agreeing to assume additional obligations at delivery), the parties can, if they wish, negotiate amendments that (if properly worded) will allow charterers to (a) give illegitimate last orders, and (b) continue paying the charterparty rate.42
Conclusions
- Shipowners benefit from being aware that a series of judicial decisions have not stopped charterers from employing carefully worded qualifications in otherwise valid redelivery notices to change their mind, even if this leaves shipowners in limbo.
- The situation is unsatisfactory because the provisional redelivery notices that charterers usually employ are arguably too qualified to qualify as valid notification given in good faith, honestly and on reasonable grounds.43
- If they so wish the parties can make sure that redelivery notices serve their intended purpose by negotiating tightened up delivery and redelivery charterparty clauses containing undertakings or promises that enhance the legal effects of the notices and, in so doing, restrict the rights of the party giving the notice to change its mind.
1 Baris Soyer and Andrew Tettenborn “Enhancing standardisation and legal certainty through standard charterparty contracts: The NYPE 2015 experience”, Charterparties: Law, Practice and Emerging Legal Issues, Chapter 5, p 68.
2 “A time charterer will only be able to fix firm employment for a vessel once he knows when the vessel will be at his disposal. Similarly, an owner needs to know when his ship will be returned to him, so that he can fix a follow-on charter with a minimum of downtime between fixtures”: “When is a Redelivery Notice Binding?”, Sea Venture, Newsletter 14, p17.
3 Carver on Charterparties (First Ed.), paras 7-394, p665 and 7-396, p666; Maestro Bulk Ltd v Cosco Bulk Carrier Co Ltd (The Great Creation) [2015] 1 Lloyds Law Rep 315, para 4, p317.
5 Carver on Charterparties, Op Cit, para 7-334, p646.
6 The Great Creation, Op Cit, p316; London Arbitration 13/22, Op Cit; Time Charters, Op Cit, para 15.15.
7UBC Chartering Ltd v Liepaya Shipping Co Ltd (The Liepaya) [1999] 1 Lloyds Law Rep 649; The Great Creation Op Cit; London Arbitration 13/22, Lloyds Maritime Law Newsletter, 01 Apr 22.
8Hyundai Merchant Marine Co Ltd v Karander Maritime Inc (The Niizuru) [1996] 2 Lloyds Law Rep 66.
9The Great Creation, Op Cit.
10Carver on Charterparties, Op Cit, para 7-398, p666.
11 IMT Shipping and Chartering GMBH v Chansung Shipping Co Ltd (The Zenovia) [2009] 2 Lloyds Law Rep 139 at 141.
12Ibid
13 The arbitrators reached the conclusion that “wp” here meant “without prejudice”, not “weather permitting”.
14 The arbitrators “…. upheld the promissory estoppel defence, determining that the relevant promise was that the charterers would redeliver the ship at the end of the voyage to China and that they would not exercise their right to redeliver at the very end of the charter period. The arbitrators also accepted the owners’ submissions on the implied term point, and held that the charterers were in breach of such implied term.” The Zenovia, Op Cit, p139.
15 Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) (CA) [1971] 1 QB 164; Marbienes Compania Naviera SA v Ferrostaal AG (The Democritos) (CA) [1976] 2 Lloyd’s Rep 149.
16 The Zenovia, Op Cit, para 17, p145.
17 The Zenovia, Op Cit, p139. “I am reluctant to uphold a conclusion that a notice of approximate redelivery expressly given without prejudice can without leading to an agreement nonetheless give rise to a promissory estoppel binding the giver of the notice.” Ibid, para 18, p146.
18 Ibid, p140.
19 “The charterers said nothing from which it could reasonably be inferred that they were abandoning any contractual rights. The charterers said nothing from which the owners could reasonably infer that the charterers intended what they said to affect the legal relationship between them. In any event what was said by the charterers, either expressly or impliedly, as to their future conduct was far too uncertain to generate an unequivocal abandonment of rights.” Ibid, p140.
20 Ibid, para 34, p152.
21 “There was no basis for the implication of the suggested term. The suggested term was not necessary to enable the contract to work. Nor was it so obvious that the parties could confidently be regarded as bound to have agreed to it had it been suggested.” The Zenovia, Ibid, p140 and para 26, p149
22 Ibid, paras 23,24 and 25
23 “When is a Redelivery Notice Binding”, Sea Venture, www.simsl.com, 1 September 2009
24 Time Charters (7th Edition, 2014), para 15.13.
25 The Great Creation, Op Cit.
26 Ibid, para 3, p317.
27 Caro Fraser, “Consequences of Law Redelivery”, Sea Venture, Issue 24, pp 23-24
28 The Great Creation, Op Cit, para 46, p322.
29 The Great Creation, Ibid, p316.
30 London Arbitration 13/22, Lloyd’s Maritime Law Newsletter, 1 April 2022.
31 London Arbitration 13/22, Op Cit., applying The Great Creation, Op Cit.”
32 London Arbitration 1/23, Lloyd’s Maritime Law Newsletter, 16 February 2023.
33 The Great Creation, Op Cit, para 40, p 322
34 It has been suggested that “…. a different view could easily be taken or that, if The Zenovia is correctly decided on its facts, then its proper explanation might be that the charterers had so qualified their “30-day notice” that it was in fact no such notice at all.” Time Charters, Ibid, para 15.18, p15; Carver on Charterparties, Op Cit, para 7-394, p666.
35 “In our view, the purpose of a 30-day notice of approximate redelivery is clear. It is to give shipowners a measure of control over their commercial operations. It increases the predictability of the ship’s timetable.” Paragraph 55 from the London Arbitration Award quoted in The Zenovia, Op Cit, para 21, p147; Soyer and Tettenborn, Op Cit, p68.
36 Time Charters, Op Cit, para 15.18.
37 NYPE 2015 is a revised NYPE form. “The decision to revise the 1993 edition was taken because it was felt by BIMCO, ASBA and the SMF that the industry would benefit from a modern and comprehensive dry cargo charter party that reflects contemporary commercial practice and legal developments that have taken place in the past twenty years.” BIMCO, NYPE 2015 Time Charterparty Explanatory Notes.
38 “ …. the potential success of NYPE 2015 in replacing its predecessors depends on an array of factors such as financial and commercial gains, market pressures, and familiarity with the workings of the contract, in addition to the legal certainty it would promote.” Soyer and Tettenborn, Op Cit, p68.
39 BIMCO Explanatory Notes, Op Cit., p6.
40 Ibid, p6.
41 Ibid, p6. See, for example, Clause 4(d) (Redelivery) of the GENTIME form.
42 “Such clauses need to be carefully drafted to expressly vest both rights to the Charterers ….”. Soyer and Tettenborn, Op Cit, pp 80 - 81.
43 Time Charters, Op Cit, para 15.18. “On the other hand, it is arguable that an approximate notice given expressly “without guarantee” might be uncontractual and therefore capable of rejection by the shipowner.” Carver on Charterparties, Op Cit, para 7-394, p666.
