Consequences of Late Redelivery

April 2015

egg timer - limitation

This recent decision by the Commercial Court in the matter of Maestro Bulk Ltd v Cosco Bulk Carrier co Ltd, ‘The Great Creation’, involving losses arising from the failure of a time charterer to redeliver a vessel in compliance with the redelivery notice provisions contained in the Charterparty, serves as an interesting example of the application of principles relevant to the assessment of damages.

The vessel was chartered on an amended NYPE time charter for a minimum of four months and a maximum of five months, plus 15 days in Charterers’ option. The earliest redelivery date was 29 March 2010 and latest 14 May 2010. The relevant clause of the Charterparty read as follows: “On redelivery charterer has to tender 20/15/10/7 days approximate and 5/3/2/1 days definite notice.”

Delays on a sub-chartered voyage led to the vessel’s final voyage taking longer than anticipated, and when it became clear that the vessel would not complete that voyage in time to arrange a further fixture within the charter period, the Charterers on 13 April issued what purported to be an approximate 20 day notice of redelivery. The vessel was then redelivered on 19 April.

Following redelivery the Owners managed to fix the vessel on 21 April, but the best they could achieve was a time charter trip which required a nine day ballast voyage, thereby reducing the effective daily hire rate.

It was accepted by the parties that, on normal principles of English law, the damages for the Charterers’ breach in redelivering on 19 April with just six days’ notice should be such as to put the Owners back in the position they would have been in, had it not been for the breach. However, there was a disagreement as to the way in which the ‘no breach’ situation should be assessed.

The Owners argued that it should be assessed by reference to the date on which the 20 day notice should have been given based on the actual redelivery on 19 April – i.e. a period of 20 days commencing on 31 March. Had such notices been given, they would have been able, they argued, to fix the vessel for a more profitable voyage. Their claim was for the lost earnings of this notional voyage.

The Charterers, however, maintained that the ‘no breach’ situation should be assessed by reference to a 20 day period running from the date on which the first redelivery notice was issued, on 13 April. On this basis, the Owners’ claim should properly be for the difference between the charter rate and what the Owners would have earned if proper notices had been given and the charter had continued until 1 – 3 May, with hire payable at that rate, less any hire earned in mitigation.

In arbitration the tribunal held in favour of the Owners, and awarded damages based on a notional lost voyage which could have been carried out had they received contractual notice on 31 March. The Charterers appealed to the High Court under s.69 of the Arbitration Act 1996 on a question of law as follows: “Where a time charter party provides for charterers to give notice of redelivery, what is the correct approach to damages when redelivery takes place with insufficient notice(s)?”

The High Court decision

Cooke J. took the view that, since on 31 March there was no intention by the Charterers to redeliver the vessel on 19 April, if the Charterers had on that date issued a 20 day notice of redelivery it would have been neither honest nor reasonable, and would in itself have been a breach or anticipatory breach. “The true nature of the breach did not lie in a failure to give an approximate notice on the 31st March, but in a failure to give that notice as at 13th April.”

On the facts as found by the Arbitrators, proper performance of the contract by the charterers would require them to issue a 20 days’ approximate notice on 13 April for redelivery on 1 May, and to keep the vessel on hire for that period.

The loss to the Owners should therefore be regarded as the hire which would have been payable for the period from 19 April to 1 May, the latter being the earliest date at which the 20 day approximate redelivery notice would have expired. This measure of damages best reflected the loss by reference to that period, and which would have been within the contemplation of the parties at the time of fixing the charter.

The Charterers’ appeal was upheld, and damages were awarded based on 12 days loss of net hire, a sum which best represented the Owners’ loss as a result of the short notice.

It was acknowledged by the Judge that the tribunal, in considering the principles relevant to the assessment of damages, had considered the appropriate tests set out in the authorities, including those relating to remoteness of loss in The Achilleas [2008] 2 Lloyd’s Rep 275 and The Sylvia [2010] 2 Lloyd’s Rep 81.  However, he concluded that instead of correctly characterising the claim as one analogous to early redelivery under the Charterparty, which was the basis on which damages should have been assessed, they had characterised the loss as one relating to a notional voyage fixed on the basis of a failure to provide a contractual notice on 21 March, and the tests had therefore been incorrectly applied.

Article by Caro Fraser, Syndicate Associate