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Thursday, January 18, 2018

CHARTER PARTY INFORMATION

English High Court rules that the effect of clause 19 of Shelltime 4 is that charterers are not entitled to give an order for an illegitimate last voyage - the Ambor/Once.

The English High Court has recently given judgment in a case concerning the construction of clause 19 of the Shelltime 4 form of charter. The point to be determined was whether the clause permits the charterers to give orders for a voyage that would otherwise have been illegitimate. This is the first time that there has been a ruling on this provision. The corresponding provision in Shelltime 3 was considered in the leading case of The World Symphony [1992] 2 Lloyd’s Rep. 115 (CA).

The Court held that clause 19 differed from its predecessor and did not entitle charterers to give orders to the vessel for a voyage that could not reasonably be expected to result in redelivery before the terminal date of the charter. For a summary of this decision, please see below.

Decision of English High Court on clause 19 of Shelltime 4 - The Ambor/Once

The English High Court has recently given judgment in the case of Marimpex Mineraloel Handelsgesellschaft MbH & Co. KG and others v. Compagnie de Gestion et D’Exploitation Ltd. (The Ambor/Once). The central issue for determination by the Court was: whether clause 19 of Shelltime 4 had the effect that it not only absolves charterers from liability for late redelivery at the conclusion of a legitimate last voyage but also permits the giving of orders for what would otherwise have been an illegitimate last voyage. Charterers argued that the clause covered both these, whereas, owners argued that it only had the first effect.

The relevant part of clause 19 provides:

“If at the time this charter would otherwise terminate in accordance with clause 4 the vessel is on a ballast voyage to a port of redelivery or is upon a laden voyage, charterers shall continue to have the use of the vessel at the same rate and conditions as stand herein for as long as necessary to complete such ballast voyage, or to complete such laden voyage and return to a port of redelivery as provided by this charter, as the case may be.”

The charter was initially for the hire of the vessel Ambor but this was later substituted by the vessel Once. It is not necessary to distinguish between the two vessels and we shall refer throughout to “the vessel”.

The charterparty was dated 3 July 1987 and was for a period of 12 months (+/- 20 days charterers option) with an additional option of 6 months to be declared at least 45 days prior to the end of the first period, commencing from the time and date of delivery of the vessel. The vessel was delivered to charterers on 28 July 1987, therefore the redelivery window was 8 January to 17 February 1989. On 16 December the charterers purported to give voyage orders for the vessel which contemplated redelivery off Khor Fakkan on or about 7 March 1989 (well outside the redelivery window). Owners refused to comply with these orders, in response to which charterers redelivered the vessel on 14 January 1989.

Charterers argued that by virtue of clause 19 their orders were for a legitimate last voyage and that owners were in repudiatory breach of contract by instructing the master not to comply with the orders. On the other hand owners argued that the orders were for an illegitimate last voyage and that owners were under no obligation to comply with these orders.

The Court referred to the following passage taken from the judgment of Lord Donaldson MR in The World Symphony [1992] 2 Lloyd’s Rep. 115 (CA) at page 118:

“1. A charter for a fixed period will have a small implied tolerance or margin in its duration. 2. A charter for a fixed period with an expressed tolerance or margin…will have no further implied tolerance or margin. 3. In either of these cases, in the absence of a “last voyage” clause, charterers will be in breach of contract if the vessel is redelivered after the expiry of the fixed period extended by the implied or expressed tolerance or margin, unless the late delivery arises out of a cause for which the owners are responsible. 4. A “last voyage” clause is needed and will protect the charterer if he orders the vessel to undertake a last voyage, which can reasonably be expected to enable the vessel to be redelivered punctually, but without fault on his part in the event such redelivery proves impossible. 5. If a “last voyage” clause is to protect a charterer from being in breach by late redelivery in circumstances in which he has ordered a voyage which is likely to or must have this result, the intention to provide this protection must be clearly expressed.”

An illegitimate last voyage is a voyage which cannot reasonably be expected to result in redelivery before the terminal date. The Court noted that the ordinary rule under a time charter was that the risk of delay falls on the time charterer. Following point 5 of Lord Donaldson’s summary, it was held to be a matter of construction of the last voyage clause as to whether it provided that time charterers were entitled to order the vessel on a voyage that would otherwise be illegimate.

The Court contrasted clause 19 with clause 18 of Shelltime 3, which provides:

“…Notwithstanding the provisions of clause 3 hereof, should the vessel be upon a voyage at the expiry of the period of this charter, charterers shall have the use of the vessel at the same rate and conditions for such extended time as may be necessary for the completion of the round voyage on which she is engaged and her return to a port of redelivery as provided by this charter.”

Lord Donaldson MR in The World Symphony took the view that the words “notwithstanding the provisions of clause 3 hereof” were crucial and had the effect of bolting on a round trip charter to one for a fixed term. The crucial words meant that clause 18 was paramount to clause 3 and was thus concerned with late delivery caused by charterers ordering the vessel to undertake a voyage which makes late redelivery likely or inevitable. The learned judge reinforced his conclusion by the desirability of the standard provisions receiving the same construction on both sides of the Atlantic.

Charterers in the present case contended that the opening phrase of clause 19 “if at the time this charter would otherwise terminate in accordance with clause 4…” were synonymous with the “crucial words” in clause 18.

The Court was referred to INTERTANKO’s publication “Observations on Shelltime 4 – New and Revised Edition” written by the late Mr Stan Bonnick. In that publication it was recognised that clause 19 of Shelltime 4 had introduced a change since the corresponding provision in Shelltime 3. Clause 19 did not expressly override clause 4 and therefore the charterers must not order the vessel to perform a voyage which would not reasonably permit the vessel to be redelivered punctually. The Court also referred to the relevant section from the publication “Time Charters” by Mr Michael Wilford. In that publication doubt was expressed as to whether the clause 19 of Shelltime 4 had the same effect as clause 18 in Shelltime 3.

Owners’ case, in brief, was that clause 19 lacked the clear or clear and compelling words that were needed for clause 19 to have a wider scope so as to enable charterers to order the vessel on a voyage which would otherwise have been an illegitimate last voyage.

The Court held that the “crucial words” in clause 18 were indeed crucial to the Court of Appeal’s decision that the clause did entitle charterers to order the vessel on an otherwise illegitimate last voyage.  Shelltime 4’s clause 19 lacked those “crucial words”. The opening words did not disclose an intention to override the otherwise final duration of the charterparty provided for in clause 4. The Court concluded that clause 19 does no more than qualify or mitigate clause 4; it does not override it.

Comment

This judgment of the High Court accords with the opinion we expressed in our publication on Shelltime 4 and the advice we have given to members in recent years. The effect of this provision has long been in need of judicial clarification. Whilst we welcome this decision, members should note that this judgment is being appealed by the charterers. We shall keep members informed of the Court of Appeal’s decision as and when it is known. We await the decision of the Court of Appeal with interest.