Charterers Beware...

The English High Court Confirms That There Are Consequences of Re-Delivering A Vessel with Insufficient Notice.

In order to give shipowners a measure of control over their commercial operations, a time charterparty will usually contain a provision whereby the charterer is to give approximate notice followed by definite notice of the ship’s re-delivery.

In a recent case called Maestro Bulk Ltd v Cosco Bulk Carrier Ltd (The “Great Creation”)  [2014], the English High Court was asked to consider the following question:

“Where a time charterparty provides for charterers to give notice of redelivery, what is the correct approach to damages whenredelivery takes place with insufficient notice(s)?”

The relevant charterparty was for a period of 4 (maximum 5) months, plus 15 days at charterers’ option) and the vessel was due to be redelivered between 29 March and 14 May 2010. The charterparty contained a fairly standard provision regarding notices of redelivery as follows: “On redelivery charterers to tender 20/15/10/7 days approximate and 5/3/2/1 days definite notice.”

Charterers had given what they said was an approximate 20 day notice of redelivery on 13 April but then proceeded to redeliver the vessel on 19 April, just six days later.

Whilst the vessel was redelivered within the redelivery window allowed (i.e. between 29 March and 14 May 2010), charterers werestill in breach of the charterparty, because they redelivered before the proper notice period had expired.

Various issues were determined in arbitration between the parties but one question was then appealed to the English High Court. That question was how to calculate the damages to be awarded to owners for charterers’ breach in redelivering the vessel before the notice period expired.

Owners argued that in order to calculate their damages, the proper notice period (approximately 20 days) should be deducted from the actual date of redelivery, 19 April,to determine the day when the notice should have been given. They argued that if notice had been given accordingly on or around 31 March, they would have been able to fix more profitably then than they were able to on 19 April and that the loss of a more profitable fixture should form the basis of the assessment of damages.

Charterers argued that damages should be calculated by looking at when they should have redelivered the vessel based on the notice actually given. As the notice was given on 13 April, the vessel should have redelivered around 1-3 May. As such, charterers said the damages should be calculated on the basis of hire at the charterparty rate for the period 19 April to 1-3 May, less any sums received in mitigation.

In answer to this question, the Court held that owners were entitled to receive hire for the balance of the redelivery notice period remaining. The arbitrators had concluded that a 2 day allowance would be given for the word “approximate” and so the balance of the redelivery notice period remaining was 12 days. As such, owners were entitled to receive an additional 12 days hire from charterers (subject to owners giving credit for any earnings that owners had been able to achieve in mitigation during this period).

Members should be aware, however, that whilst this case appears to confirm that these situations will be treated as early redelivery scenarios, a different result might be reached in circumstances where charterers always intended to redeliver the vessel on a particular date, but simply forgot to send one or more of the requisite notices.