The SONGA PRIDE: when and where must Owners repossess?

Background

A Croatian shipbuilder, BDOO, agreed to charter a chemical and oil product tanker it was building to Songa Shipping Pte Ltd. The tanker was subsequently named “Songa Pride” (the “Vessel”). The governing terms were a bareboat charterparty dated 11 February 2013 on an amended BIMCO BARECON 2001 form (the “Charterparty”). On 17 December 2013, the Charterparty was novated by the original parties to Kairos Shipping II LLC, a party in the same beneficial ownership as BDOO (the “Owners”) and Songa Product and Chemical Tankers III AS (the “Charterers”). The Vessel was delivered to Charterers on 23 December 2016. 

Clause 28 of the Charterparty set out the circumstances in which the Charterparty might be terminated and clause 28(d) specifically addressed insolvency involving either party. Clause 29 set out the process for repossession of the Vessel in the event of termination in accordance with clause 28. Clause 29 provided that:

“In the event of termination of this Charter in accordance with the applicable provisions of Clause 28, the Owners shall have the right to repossess the Vessel from the Charterers at her current or next port of call, or at a port or place convenient to them without hindrance or interference by the Charterers, courts or local authorities….The Owners shall arrange for an authorised representative to board the Vessel as soon as reasonably practicable following the termination of the Charter.  The Vessel shall be deemed to be repossessed by the Owners from the Charterers upon the boarding of the Vessel by the Owners’ representative…”

On 16 October 2020, the Commercial Court in Split confirmed a “Restructuring Plan and Pre-Bankruptcy Agreement” for BDOO. Charterers claimed that this was an event falling within clause 28(d), entitling them to terminate the Charterparty with immediate effect.

Charterers gave notice of termination on 14 May 2021, whilst the Vessel was at Stockton, California, and notified Owners that they were ready for Owners to take repossession. Owners refused and insisted that the Vessel be brought by Charterers to Trogir, Croatia, where BDOO had a shipyard.

A dispute subsequently arose and the Vessel was initially sailed to Mexico to reduce costs. Charterers then agreed, under protest, to commence the voyage to Trogir. Charterers arrested the Vessel at Gibraltar on 20 September 2021. On 7 January 2022, Owners provided security and took possession of the Vessel.

LMAA Arbitration Proceedings

On 13 January 2022, Charterers commenced LMAA arbitration and sought damages of US$2.19 million for Owners’ breach of clause 29; alleging Owners failed to take possession at Stockton as soon as reasonably practicable. Owners denied liability, stating Charterers were not entitled to terminate under clause 28(d), and counterclaimed for damages for lost hire.

The Tribunal found in Owners’ favour. They explained that the words “convenient to them” in clause 29 were to be read as objectively convenient to Owners for taking repossession provided their request wasn’t irrational or arbitrary.

On this basis, the Tribunal held that Trogir was a place that was objectively convenient to Owners for the purpose of taking repossession of the Vessel as soon as reasonably practicable. Charterers were awarded damages only for the expenses incurred before the Vessel reached Gibraltar and Owners’ counterclaim for lost hire failed.

Section 69 Appeal to the High Court

Charterers sought and were granted leave to appeal the Tribunal’s award under section 69 of the Arbitration Act 1996 (an appeal on a point of law) and sought clarification on the correct interpretation of clause 29.

On 13 December 2024, the High Court held that the Tribunal had erred in law.

The Court disagreed with the Tribunal’s finding that clause 29 was unambiguous. It found that the language used was opaque and failed to specify its intentions; it was necessary to apply the commercial context when read as a whole.

The Court also stated that the phrase “convenient to them” should be construed narrowly so as to be fair within the context of the scenarios given in clause 28. It concluded that on its proper construction clause 29 requires Owners to repossess the Vessel by causing their representative to board the Vessel as soon as reasonably practicable after termination. It also found that it would have been reasonably practicable and quicker for Owners to have undertaken that task at Stockton rather than make the Vessel sail to Trogir.

The High Court granted Owners permission to appeal to the Court of Appeal. The appeal concerned the proper interpretation of clause 29.

The Court of Appeal’s Decision

The Court of Appeal subsequently dismissed Owners’ appeal and upheld the reasoning of the High Court.

The Court of Appeal found that had the parties intended clause 29 to act in a manner so favourable to Owners, then it could have been drafted accordingly to give Owners an express right to nominate the location for repossession. Instead, the purpose of “her current or next port” is simply a reflection of the fact a vessel may be in port at the time of termination but equally may be at sea.

Clause 29 set out the Owners’ rights and their obligations; it is, therefore, to be read as a whole rather than each sentence operating separately. In view of these obligations the Court found that the words “at a port or place convenient to them” had a clear purpose which was to act as a fall-back in the event it was not convenient for Owners to take possession in the current/next port.

Finally, the Court found there were no commercial obligations on the Charterers to sail the Vessel to another port and any such duty to do so should be strictly confined to only what is necessary.

The Court further clarified that:

• The legal and commercial nature of a bareboat Charterparty does not justify interpreting clause 29 in favour of Owners; and
• If the Vessel is currently in port when the Charterparty is terminated under clause 29, the Charterers’ obligations to operate, maintain and insure the Vessel will cease with a corresponding imperative for Owners to repossess the Vessel at the first opportunity (unless it is impracticable or impossible for them to do so).

Comments

This judgment provides welcome clarity for Members in understanding their obligations and potential exposure under bareboat charters - particularly the limits on Owners’ rights to dictate redelivery locations. The decision also emphasises the importance of prompt repossession to avoid unnecessary operational and financial burdens on Charterers.