Trip Time Charter - A Guarantee of Income or Merely Duration?

December 2005

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The High Court was asked to consider whether a guaranteed duration in a trip time charter amounted to a guarantee of a minimum lump sum remuneration to the Owner, regardless of whether or not any loss is suffered by the Owner as a consequence of an early redelivery*.

The case was brought to the High Court by way of an appeal by Charterers from a decision of an Arbitrator who had held that the guaranteed duration equated to a guaranteed lump-sum remuneration.

The vessel had been chartered for "…one time charter trip… the Charterers guarantee a minimum 35 days". The vessel performed a voyage from New Orleans to Tartous, and was redelivered by Charterers following a total employment period of 33 days 12 hours and 31 minutes, being 1 day, 11 hours and 29 minutes short of the guaranteed minimum duration of 35 days.

The Charterer accepted that they were liable to pay hire for the period of the shortfall at the difference between the charter rate and the vessel's actual earnings.

The vessel was next employed by the Owner on a voyage charter basis, and delivered under that fixture immediately upon redelivery by the Charterer. Owners argued that the earnings for the overlap period were irrelevant to the calculation of damages for charterer's breach. The Owner claimed for the balance of hire payable for the short-fall period.

The Arbitrator had held in favour of the Owners, accepting that the intention of Owners in fixing their vessels on a trip time charter basis with a guaranteed minimum duration was to ensure a minimum amount of earnings, and that in the context of a minimum guaranteed duration, the question of damages could not be viewed in the same way as it would in the context of an early redelivery under a time charter where duration was agreed on the basis of estimates or without guarantee.

Leave to appeal the Arbitrator's decision was granted on the basis that the case involved a question of law which was of general importance in the context of every trip time charter where a minimum duration had been agreed.

Owners put forward two further arguments in the Appeal, in addition to the argument which the Arbitrator had accepted that the Charterers had agreed to pay a minimum lump sum for the voyage.

Their first argument was that because the Charterparty was for an guaranteed sum of hire it was a straightforward claim in debt to which the normal rules of mitigation did not apply.

Their second argument was that even if the normal rules as to mitigation applied the only benefit arising out of charterers breach in redelivering the vessel early was to bring forward their earnings on the subsequent fixture by one and a half days than would have been the case if the vessel had been redelivered on time. That is Owners earnings were exactly the same with or without the breach and there was nothing to give credit for.

Charterers' position was that as a result of the early redelivery Owners were not merely able to deliver the vessel into her next employment a day and a half early. In fact they argued Owners had one and a half days more use of the vessel under the following fixture than envisaged and that this was relevant to the assessment of damages.

Charterers also argued that the guarantee applied only to duration, and not to Owners' overall entitlement to hire and drew an analogy with the position where the vessel was legitimately off hire for 1.5 days during the 35 day charter period, such that hire was only payable for 33.5 days.

The Court allowed Charterers' appeal on the basis that the word "guarantee" is used to distinguish the charter from those where duration is estimated or given "without guarantee" but has no impact on the measure of damages if the guarantee is broken. The Court therefore remitted the award back to the Arbitrator to assess the damages, with a direction that Owners' losses were to be calculated by applying the usual rules of mitigation. Owners' damages would be assessed by comparing the charter rate with the market rate for the extra one and a half days.

The Court's decision makes sense in the context of trip time charters, where the entitlement to hire is not just determined by the agreed duration (whether that is fixed by way of guarantee or estimate), but by other factors such as the occurrence of off-hire, and the inclusion of provisions which either allow or prevent off-hire periods from being added to the charter period. The decision also avoids un-commercial results, such as where an owner benefits significantly from a rising market but does not have to account for that benefit in the assessment of damages due from a charterer who has redelivered early, and where the owner would in theory otherwise receive hire under two charters concurrently, even though the vessel has been redelivered under the first charter.

*Miranos International Tarding Inc v VOC Steel Services BV QBD (Comm) (Cooke J) 15.07.05