The recent Court of Appeal decision in The “Paragon” addressed the principles supporting claims for late redelivery. The facts of the case have been discussed in earlier website article from September 2009 Liquidated Damages Clause - Penal or Compensatory, which also looked at whether clause 101 of the charterparty was penal or compensatory in nature. This article focuses on the general principles applicable to late redelivery and the cases referred to by Lord Clarke in The “Paragon”.
A charterer’s primary obligation under the charterparty is to pay hire continuously for the duration of the charter period. Issues as to delivery of the vessel to charterers and whether or not a vessel is fully fit and able to render the service required by charterers are beyond the scope of this article, although the obligation to pay hire continuously does raise the question of the charter period. Clearly within that period the charterer will seek to employ the vessel so as to maximise earnings and thus the decision whether or not a final voyage is possible within the charter period and if an order for that final voyage is legitimate or not, is relevant
The meaning of a legitimate or illegitimate last voyage is well established; The "Peonia" (1991) 1 LLR, The "Dione" (1975) 1 Lloyd’s Rep., The "Black Falcon" (19991) 1 Lloyd’s Rep. and The "Gregos" (1994) 1 WLR 1465. An illegitimate last voyage is a voyage which cannot reasonably be expected to be performed by the (final) charterparty redelivery date. It is, thus, an order that the charterer is not entitled to give and in doing so he commits a breach of charterparty. In contrast, a legitimate last voyage is one which can reasonably be expected to be completed within the time for redelivery under the charterparty.
In the event of a legitimate last voyage order, but where the vessel is redelivered after the contractual redelivery date, the charterers are liable for hire at the charterparty rate until the contractual redelivery date and thereafter at the market rate to the actual date of redelivery (where the market rate is higher than the charter rate).
Where a last order given by charterer is illegitimate, an owner has a choice either to reject or accept that order.
If the order is for a voyage that the vessel cannot be expected to complete within the charter period, owners are entitled to reject that order and call for fresh orders for a legitimate last voyage. However, if the charterers continue to insist that the voyage can be completed in the charter period and persist in that order, if owners are correct that the voyage cannot reasonably be completed in the charter period, charterers are at risk that their conduct will amount to a repudiation of the charterparty (see below).
In contrast, if the owners accept an illegitimate last voyage order there are two possible outcomes:
1. Provided the charterers’ breach is not waived, hire is payable at the charter rate until contractual redelivery as well as damages for the overrun period - being the difference between market rate, if higher than the charter party rate, and charter rate for the period between final terminal date and redelivery, or
2. If the charterers’ breach in giving an order that is illegitimate amounts to a repudiation of the charter, and owners accept the repudiation, the charter is at an end and owners can (i) nonetheless, and without waiving charterers’ repudiatory breach, agree to perform that voyage but at a negotiated rate of hire that is no doubt closely related to the market rate, or (ii) fix a charter with some other charterer an claim damages (to the extent of any loss in comparison to hire that would have been earned but for charterers’ repudiation) .
With respect to repudiatory conduct it is thought important to stress that the mere giving of an illegitimate order will not of itself amount to a repudiatory breach. Indeed, the obligation to redeliver the vessel within the contractual period is probably an innominate term. In order to amount to repudiatory breach the charterers’ conduct must amount to or demonstrate an intention that suggests they no longer wish to be bound by the charterparty. For example in The "Gregos", the vessel was on time charter for “about 50 to maximum 70 days” with the latest redelivery date being 18 March 1988. On 9 February charterers gave orders to proceed to the River Orinoco to load a cargo for shipment to Fos, where the vessel should have been redelivered. At the time these orders allowed for timely redelivery. However, another vessel ran aground and blocked the navigable channel in Orinoco for several days and the Gregos only arrived at the load port on 25 February, by which time the final voyage to Fos could no longer be completed by 18 March. The owners were unwilling to proceed with the laden voyage to Fos and asked charterers for fresh valid orders, failing which they would treat the charterers as being in repudiatory breach and withdraw the vessel. The charterers, though, persisted with the original orders for a loaded voyage to Fos such that it was clear that they had no intention of giving fresh valid orders and owners were entitled to treat the contract as at an end.
Interestingly in The “Paragon” owners had also argued that an illegitimate last voyage order falls outside the scope of the charterparty and, thus, if an owner agreed to perform that voyage no damages are payable. Instead, an owner performing such a voyage would be entitled to remuneration on a quasi contractual or quatum meruit basis which, absent any agreement on the rate, would be the market rate at the time of the voyage. Clarke LJ rejected this argument. He referred to Lord Mustill speech in The "Gregos" and said “that too much attention was paid to the order for the last voyage and too little to the owners’ promise to furnish the services of the vessel, which was what the contract was about”. Therefore he concluded that where an owner chooses to perform a last voyage, he is doing so under the contract, despite the voyage being legitimate or illegitimate, and is bound by the terms of the contract but entitled to damages for any loss caused by the breach which was consistent with the general principle that “where of an innocent party chooses to perform the contract after a repudiatory breach of a contract by the other party, he continues to be bound by the terms of the contract but is entitled to damages for any loss cause by the breach”.
It is also noteworthy that Clarke LJ distinguished Steven v Bromley & Son (1919) 2 KB 722, on which owners have relied, on the facts. In that case the facts implied that the charterers had made an offer to load general cargo at the current market rate of freight and the owner had accepted that offer, therefore effectively entering into a new contract.
In conclusion, the decision in The “Paragon” re-confirmed well-established principles supporting the basis of claims for late redelivery. The measure of damages for late redelivery is the same, whether redelivery is a consequence of a legitimate last voyage order that over runs or an illegitimate order that is performed, that is to compensate owners at the market rate for the overrun period. (However, note the decision in The “Achilleas” reported in a September 2008 website article: Recoverable Damages and The “Achilleas” - A New Approach?)
