The vessel was on timecharter for three to five months at $29,500 per day. Rider clause 101 of the charter provided as follows:
“"The Charterers hereby undertake the obligation/responsibility to make thorough investigations and every arrangement in order to ensure that the last voyage of this Charter will in no way exceed the maximum period under this Charter Party. If, however, Charterers fail to comply with this obligation and the last voyage will exceed the maximum period, should the market rise above the Charter Party rate in the meantime, it is hereby agreed that the charter hire will be adjusted to reflect the prevailing market level from the 30th day prior to the maximum period [d]ate until actual redelivery of the vessel to the Owners."
The vessel was redelivered some six days late and charterers paid hire at the charter rate to the maximum date of redelivery and at market rate for the 6 day overrun. However in reliance on clause 101, owners additionally claimed hire at market rate for the 30 day period prior to the latest date for redelivery. With increasing rates the additional claim owners pursued was US$471,603 above what charterers had paid.
The question of whether clause 101 was a penalty clause was dealt with as a preliminary issue by the Tribunal, which held that it was on the ground that it did not constitute a genuine pre-estimate of owners’ losses and that the second limb of the clause was penal. If the charterers did not make serious effort to meet their obligations to redeliver on time, the obligation to pay market rate beginning 30 days before contractual redelivery came into effect and so operated as a deterrent on charterers from breaching their contractual redelivery obligations.
The court considered the law as to both the question of penalties and also obligations as to redelivery under a time charter.
The law regarding penalty clauses was not disputed. As per Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1015] AC at 79
Thus a clause allowing for liquidated damages in the event of breach is not a penalty when its purpose is to provide a genuine pre-estimate of losses rather than to act as a deterrent not to breach the contract. This is a matter of construction dependent on each particular contract and requires the court to look at the loss that might be sustained in the event of a breach against the amount payable under the clause.
Accordingly the question of legitimate and illegitimate final voyage orders was relevant. A legitimate last voyage order being one which can reasonably be expected to be performed by the time for redelivery and the latter where it cannot be so reasonably expected. Owners can of course elect to perform an illegitimate voyage order or call upon charterers to withdraw the order and in the face of persistence, treat the order as repudiatory and thus the charter as at an end. Should the owners elect to perform, they have a claim in damages for hire at current market rate for the excess period.
Owners’ submission was that when an owner was unable to determine if the final voyage order was legitimate or otherwise, it could not be determined whether a repudiatory breach was being committed so entitling the owner to bring the charter to an end. It was likely an owner would perform the voyage and as a consequence he would lose the chance to re-fix the vessel prior to the latest contractual redelivery date. A chance he would have had if charterers had given a revised legitimate order or if owners had accepted the breach as repudiatory. Owners’ had adduced expert evidence before the Tribunal to the effect that the 30 day period represented half the average voyage length for the vessel and was thus a fair middle position.
The court accepted that potentially illegitimate final voyage orders do give difficulty but owners had an option to bring the contract to an end if such an order was given. If owners nonetheless chose to accept the order they had forgone the chance of early redelivery and ought not to be compensated for loss of the chance to refix at a more advantageous rate.
The clause was therefore penal as it provided for compensation for a loss that was not recoverable and the loss of a chance an owner chose not to take.
Lansat Shipping Co Ltd –v- Glencore Grain BV “The Paragon” [2009] EWHC 551 (Comm)
Article by Sian Morris
