Legitimate Final Voyage Instructions

December 2004

In the "Kriti Akti"¹ the Court of Appeal considered whether final voyage orders given during an extended charter period were legitimate.

The vessel was chartered under a time charter on the Shelltime 3 form ".... for a period of 11 (eleven) months, 15 days more or less in charterers' option ….." (clause 3).

The vessel was delivered under the charter on 25 May 2000. The 11 month period provided by clause 3 expired on 24 April 2001. During the charter the vessel had been off-hire on various occasions, and for the purposes of the appeal, the court adopted the charterers' figure of 36 days off-hire. By clause 50 of the charter party, charterers could opt to add any periods of off-hire "…as an extension of the aforesaid charter period".

On 13 March 2001 charterers advised owners that they were exercising their option to extend the charter through to 14 June 2001. This period was calculated by the charterers on the following basis: 

(i) Charterers were entitled to add on to the charter the 15 day margin given by clause 3. 

(ii) Charterers were entitled to add on the 36 days of off-hire pursuant to clause 50.

On 29 May 2001 charterers advised owners of their intentions for further employment for the vessel. They ordered the vessel to perform a voyage from Sao Sebastiao, where the vessel was discharging, to New York, subsequently altered to a voyage from Sao Sebastiao to Santos and then on to New York for redelivery.

The voyage could not be completed by 14 June 2001, which was the date to which the charter could be extended pursuant to the operation of clauses 3 and 50 respectively. Therefore, owners refused to perform the proposed voyage other than at an increased rate. Charterers refused and the owners took redelivery of the vessel at Santos.

The charterers commenced arbitration proceedings claiming damages arising from the owners' refusal to comply with their legitimate orders for the employment of the vessel. Charterers sought to rely on clause 18 of the charter to support their claim to be entitled to ask the owners perform the final voyage. Clause 18 provided that :-

"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…". (emphasis provided)

The charterers' position hinged on being able to add both the 36 day off-hire period and the 15 days allowance to the basic 11 month period to arrive at a total period within which they could exercise a right to send the vessel, pursuant to clause 18, on a final voyage which was likely to extend beyond the end of that total period.

Two issues were referred to the arbitrators for determination as preliminary issues:

(i) Did the term "period of this charter" in clause 18 include or exclude any additional periods that the charterers could elect to add pursuant to clause 50 (the off-hire periods)? 

(ii) If it did include off-hire periods, then did that extended period also include or exclude the 15 days tolerance provided by clause 3?

The arbitrators' answered the first question in the positive (include), and the second in the negative (exclude). In other words, the period of the charter during within which charterers were entitled to give a final voyage order under clause 18 could include the 36 days claimed as off-hire, but could not be calculated to also include the 15 day tolerance period.

Charterers appealed against the second finding, and owners against the first. In the High Court, Justice Moore-Bick held that charterers were entitled to the benefit of the 15 day tolerance period in calculating the period of the charter during which charterers were entitled to give a final voyage order, as well as the off-hire periods. The Judge pointed out that clause 18 had previously been considered by the High Court in the "World Symphony"². In that case, it had been held that clause 18 of the Shelltime 3 form confers "…very considerable freedom as regards the redelivery date…", so that the charterers could order a voyage to commence during the basic period which would end long after the terminal date arrived at by adding off-hire and tolerance periods.

Owners appealed to the Court of Appeal. Their appeal failed. The Court of Appeal held that a final voyage envisaged by clause 18 could be ordered to be commenced at any time during the period of the charter, and pursuant to this clause this period was calculated by reference to the basic charter period of 11 months, plus off-hire days, plus 15 days. The 15 day "more or less" option provided by clause 3 was relevant in so far as the period within which charterers could, at their option, redeliver the vessel so that the charter period could be extended by 15 days. That is clause 3 did not, as owners contended, only operate to prevent charterers being in breach if redelivery was delayed beyond the basic charter period as a consequence of unforeseen events.

The practical effect of clause 18 of the Shelltime 3 form is that owners could be exposed to a final round voyage of no fixed length which from the outset is clearly likely to extend beyond the final terminal date of the charter³. The Shelltime 4 form on the other hand is likely to produce a different outcome. Clause 19 of that form (the equivalent to clause 18 of the Shelltime 3 form) does not begin with the words "Notwithstanding the provisions of clause 3…". It would seem that in a case involving the Shelltime 4 form, a last voyage order could be illegitimate if at the time the instruction is given it could not be reasonably expected that the voyage would be completed by the final terminal date, due to the absence of the words quoted above.

1 (2004) 1 LLR 712 

2 (1991) 2 LLR 251 

3 The Court of Appeal did not address charterers submission that voyages of an extreme length may nevertheless be excluded from this interpretation.