Lansat Shipping Co v Glencore Grain BV [2009] EWHC 551 (Comm), [2009] All ER (D) 247 (Mar)
Queen’s Bench Division, Commercial Court, Blair J, 25 March 2009
A clause in a time charter providing for the market rate (if higher than the contractual rate) to be payable from the 30th day prior to the maximum date under the charter to the actual redelivery of the vessel has been held to be a penalty clause.
Michael Davey (instructed by Ince & Co) for the owner. Simon Birt (instructed by Birketts LLP) for the charterer.
In November 2006, the parties entered into a time charter based on the New York Produce Exchange form. It provided for hire of the vessel “from the time of delivery, for about minimum three to about five months (about means +/- 15 days)”. Clause 101 provided that: “The Charterers hereby undertake the obligation/responsibility...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 thirtieth day prior to the maximum period [d]ate until actual redelivery of the vessel to the Owners.”
The vessel was delivered on 29 November 2006. In the event, the vessel was redelivered six days late. The charterer had paid hire at the charter rate for the duration of the charter up until the last redelivery date on 14 May 2007, and at the market rate for the six days the vessel was overdue. In reliance on cl 101, the owner also claimed hire based on the market rate for 30 days before the latest date for redelivery.
The additional claim was at a market rate of US$46,083.82 per day, as opposed to the charter rate of US$29,500 per day. On that basis, the owner’s claim amounted to US$471,603.32, over and above what the charterer had already paid. In subsequent arbitration proceedings a preliminary issue was ordered as to whether or not the second sentence of cl 101 was a penalty clause and therefore unenforceable. The arbitrators held that it was, and the owners appealed.
His lordship considered first the issue of last orders, and held that he was bound to follow the reasoning in The Black Falcon [1991] 1 Lloyd’s Rep 77, as the same reasoning had been followed or cited without disapproval in, among others, The Achilleas [2008] 2 All ER (Comm) 753.
He turned to cl 101. The owners argued that it was concerned with the breach of contract inherent in an order for an illegitimate last voyage, not the breach which happened on late redelivery. By confusing the two, the tribunal concluded that the loss suffered was limited to the six-day period between when the vessel should have been redelivered under the charter, and when it was redelivered. The owners’ loss, it was submitted, was much more extensive, consisting of the period from when the illegitimate last order was given. In respect of that loss, cl 101 was a genuine pre-estimate of damage, and should accordingly have been upheld.
The tribunal explained its view that loss would not be loss resulting from failure to comply with cl 101: “Failure to comply with the obligation there referred to would simply mean that the vessel was redelivered beyond the maximum contractual redelivery date. The loss to which the Owners refer is, to our minds, something quite different. It assumes that the Charterers give an illegitimate order for the last voyage. This is then refused by the Owners, but the Charterers persist in that order so that they put themselves in repudiatory breach of the Charterparty. The Owners could then accept that repudiatory breach. However, it is not the consequence of the Charterers giving orders for an illegitimate last voyage that the Owners would be entitled to have their vessel back and to trade her in the market: they could only achieve that if the Charterers repudiated the charter party. If the Charterers had given orders for an illegitimate last voyage, the Owners could have refused those orders and it would then be for the Charterers to give lawful orders for a voyage which would be concluded within the contractual period. It would only be if the Charterers persisted in orders for an illegitimate last voyage that the question of repudiation would arise.”
Persistence
The owners responded that persistence in orders for an illegitimate last voyage was precisely the situation in which the owners would not suffer any loss, because the charter would be terminated and the owners would be able to go out into the market. In fact they suffered loss in the reverse situation, where they did not feel able to terminate (usually because they did not know enough about the likely length of the final voyage) and therefore lose the opportunity to go out into the market.
His lordship recognised the force of the factual content of that submission. The practical difficulty in assessing the duration of the voyage, together with the potential liability in calling it wrongly, was quite sufficient to explain why shipowners might wish to include a provision of the kind in a time charter. But that did not meet the tribunal’s point. The possibility of loss arose if an illegitimate last order was given. If the order was persisted in, the owners could bring the contract to an end and go into the market. But in that case, they suffered no loss.
If however the owners chose to accept the order, their recoverable loss was not what the vessel would have earned at market rates for the remainder of the charter period, but the market rate for the overrun period if an overrun transpired. That was sufficient to justify the tribunal’s conclusion.
