THE APPRAISAL OF LAST VOYAGE AND REDELIVERY OF VESSEL.(CONTRACT OF AFFREIGHTMENT)

BYOLIVER CHINOMSO NWAKAMMA

FACULTY OF LAW, UNIVERSITY OF NIGERIA

TABLE OF CONTENTSTable of

Contents------------------------------------------------------

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Table of

Cases---------------------------------------------------------

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Abstract------------------------------------------------------

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Introduction--------------------------------------------------

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The Final or Last

Voyage--------------------------------------------------------

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Redelivery of the

Vessel--------------------------------------------------------

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General Principles Applicable to Late Delivery

Claims------------------------------------ 3

Recoverable Damages

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Redelivery

Requirements--------------------------------------------------

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Conclusion----------------------------------------------------

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TABLE OF CASES

Alma Shipping of Monrovia v. Mantovani (‘The Dione’) 1975 1Lloyd’s Rep 115. Attica Sea Carriers Corp v. Ferrostaal-Poseidon Bulk ReedereiGmbh [1976] 1 Lloyd’s Rep 253Aurora Borealis Compagnia Armadora SA & Buenamar Compagnia NavS.A. v. Marine Midland Bank N.A. [1984] 1 Lloyd’s Rep 646Chellew Navigation v. Appelquist [1933] 38 Com Cas 218Gray and Co. v. Christie, [1889] 5 T.L.R. 577:

Hadley v. Baxendale [1854] 9 Exch 341

Heron II [1969] 1 AC 350.Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (ThePeonia) [1991] 1 Lloyd’s Rep 100. Lansat Shipping Co Ltd v. Glencore Grain BV (The Paragon)[2009] EWHC 551 (Comm)London and Overseas Freighters v. Timber Shipping Co. SA (TheLondon Explorer) [1971] 1 Lloyd’s Rep. 523.[1972] AC 1.

Malaysia International S.S. Corp v. Empresa Cubana de Fletes[1981] 1 Lloyd’s Rep 518

Meyer v. Sanderson ]1916] 32 T.L.R. 428.

Prebensens Dampskibsselskabet A/S v. Munson S.S. Line [1919]258 Fed. R. 227 by the U.S. Circuit Court of Appeals, SecondCircuitReardon Smith Line Ltd v. Sanko Steamship Co Ltd [1985] 1Lloyd’s Rep 418.

Santa Martha Baay Scheepvaart & Handelsmaatschappij NV v.Scanbulk A/S (The Rijn) [1981] 2 Lloyd’s Rep 267

Somelas Corp v. Gerrards Rederi A/S [1980] 2 Lloyd’s Rep 102

Steven v. Bromley & Son [1919] 2 KB 722,

The Rozel [1994] 2 Lloyd’s Rep 161

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Torvald Klaveness AIS v. Arni Maritime Corp.(The Gregos)[1994]1 WLR 1465,HL

Transfield Shipping Inc. v. Mercator Shipping Inc (TheAchilleas) [2007] 1 Lloyd’s Rep 19, [2007] 1 All ER (Comm)379;

Watson Steamship Co. v. Merry Weather & Co., [1913] 18 Com.Cas. 294 at p. 300

Wye SS Co v. Compagnie Paris-Orleans [1922] 1 KB 617

INTRODUCTIONThis seminar papers discusses the final or last voyagecharterparty contract and the period of time available to thecharterer under a charter party to redeliver the vessel to theowner and most particularly with mechanisms governing theproper time for the redelivery of the vessel and theallocation of liability for losses arising out of lateredelivery.The charterer will seek to maximise the number of profitableadventures that he can engage in during the charter whilst theowner will seek to minimise the time lost between the returnof the vessel and it’s handing over to a new charterer.Inevitably, despite the apparent simplicity of hiring a vesselfor a specific voyage or period of time, the uncertaintyinherent in maritime ventures results in tension between thecharterer and ship owner at hand over time. A ship owner canfind himself exposed to liability if he is unable to deliverthe vessel to a charterer because the previous charter hasover run its allocated time, whether that over run /overlap isintentional or not. Where this occurs the owner will, ifpossible, seek to recover any consequent losses from the

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charterer who over-ran his charter, thereby causing theproblem.A charterparty is the contract between the owner of a vesseland the charterer for the use of a vessel. The charterer takesover the vessel for either a certain period of time (a timecharter) or for a certain point-to-point voyage (a voyagecharter), giving rise to these two main types of charteragreement. There is a subtype of time charter called thedemise or bareboat charter. In a time charter, the vessel ishired for a specific period of time. The owner still managesthe vessel but the charterer gives orders for the employmentof the vessel, and may sub-charter the vessel on a timecharter or voyage charter basis. The demise or bareboatcharter is a subtype of time charter in which the charterertakes responsibility for the crewing and maintenance of theship during the time of the charter, assuming the legalresponsibilities of the owner and is known as a disponentowner. In a voyage charter, the charterer hires the vessel fora voyage or voyages, and the vessel's owner (or disponentowner) provides the master, crew, bunkers and supplies.

Different principles may apply to these types ofcharterparties in respect of issues arising out of finalvoyage or redelivery of vessel.1

THE FINAL OR LAST VOYAGEThe last voyage is the final voyage undertaken by the vesselunder a chaterparty before redelivery to the owner. It may belegitimate or illegitimate, depending on the circumstances ofthe case.2

The charterer will want to make the maximum use of the vesselwhile he is still paying for its services within the timeprovided by the charter party. When the charterer gives

1 In voyage charter and time charter, the ship owner who retains the management of the ship is in a good position to mitigate his damages in theevent of breach of contract unlike the situation in demise/bareboat charterwhere the charterer assumes the responsibility of managing or superintending the management of the ship. 2 F.N Monye; Commercial Law. Chenglo Limited, Enugu, 2006.p.191

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directions for a final voyage which is reasonably expected tobe completed by the end of the charter period it is consideredas a legitimate last voyage and the owner must obey thecharterers’ directions. No problems will arise if such lastvoyage can be performed as expected – the vessel can be re-delivered on time. However, if the voyage that originallycould reasonably be expected to be completed cannot beterminated by the end of the charter period it depends on whois responsible for the fault through which the delay wascaused: If the owner himself is responsible for a faultthrough which the charterer is unable to redeliver the vesselby the end of the charter period (including a possibleexpressed or implied margin) the charterer is for obviousreasons not to blame: The owner cannot complain of thecharterer’s failure to redeliver by the final terminal date ifhe is himself the cause of that failure. If the charterer isto blame for the reason that caused the late re-delivery ofthe vessel, it is also quite clear that the owner cannot beheld responsible for a fault that he has not caused. But whatif the orders for the last voyage being legitimate (in thesense as defined above) and the charterer is unable to re-deliver the vessel by the time required in the charter partyfor a reason which none of the parties is responsible for? Theleading case concerning this matter was The Dione3; which wasdecided in 1975. In this case Lord Denning expressed the viewthat the charterer was not in breach of contract if the ordersfor the last voyage were ‘legitimate’ as defined above.4 Thecharterers were not in breach of the charter party andtherefore did not have to pay damages; all that was to pay wasthe hire at the agreed charter rate until actual re-deliveryof the vessel, because at that particular time the market ratewas lower than the charter rate. Consequently it was notdecided what the position of the court would have been if the

3 Alma Shipping of Monrovia v. Mantovani (‘The Dione’) 1975 1 Lloyd’s Rep 115. Discussed more in details infra. 4 Ibid p.

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market rate would have gone up. However, in The LondonExplorer5the majority of the judges agreed that the charterercould be liable to pay the contractual hire and in addition –if the market had gone up – damages in form of the differencebetween the charter and the market rate from the final date ofthe charter (including the additional margin) until the actualre-delivery of the vessel.6

However, the decision of The Peonia7 in 1991 has contributed toclarifying the law concerning the last voyage. If on alegitimate last voyage an event occurs which is beyond thecharterers control (such as bad weather) which prevents himfrom a redelivery on time the charterer is still under theobligation to re-deliver the vessel on time. Consequently, thecharterer is in breach of the contract as he does not meet therequirement of contractual redelivery with the result that heis liable to pay damages. The hire is due until the day ofactual redelivery of the vessel.

REDELIVERY OF THE VESSELA time charterparty, other than a trip charterparty, normallymakes provision for the final date the vessel is to beredelivered to the owner.8 This date is known as the ‘finalterminal date’.9 If the charterer fails to redeliver the vesselby this date, he will be liable to damages.10

5 London and Overseas Freighters v. Timber Shipping Co. SA (The London Explorer) [1971] 1 Lloyd’s Rep. 523.[1972] AC 1.6 See the decision of the House of Lords in the recent case of Transfield Shipping Inc. v Mercator Shipping Inc (The Achilleas) [2007] 1 Lloyd’s Rep 19, [2007] 1 All ER (Comm) 379; where the Learned decided on the modern approach in recovering of damages for late delivery. See pg 10 infra.7 Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia) [1991] 1 Lloyd’s Rep 100. Discussed more in details infra.

8 Ibid n.2 p. 1919 Ibid p.16210 Ibid.

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Depending on the type of charterparty and the terms ofcontract between the parties the ship may at all material timebe in possession of the owner. Therefore, the use of thephrase ‘redelivery’ may sometimes be confusing especially tolaymen or persons not trained or conversant with the nature ofcontract of affreightment. In a voyage and time charterpartywhere the ship owner retains the management of the vesselhowever subject to the terms of the contracts(per timecharterparty) the redelivery of is presumed after the lastvoyage or determination of the contract by lapse of time asenshrined in the contract between the parties. However, in ademise charter where the charterer subject to the terms of thecontract leases the vessel for a period of time and employsthe master and crew men, thereby taking over the ultimatemanagement of the ship; redelivery in such circumstance willbe effected when the charterer delivers the vessel to theagreed location or port as contained in the chartyparty afterthe determination of the contract.

GENERAL PRINCIPLES APPLICABLE TO LATE DELIVERY CLAIMSThe recent decision in The Paragon11 addressed the principlessupporting claims for late redelivery. A charterer’s primaryobligation under the charterparty is to pay hire continuouslyfor the duration of the charter period. Clearly within thatperiod the charterer will seek to employ the vessel so as tomaximise earnings and thus the decision whether or not a finalvoyage is possible within the charter period and if an orderfor that final voyage is legitimate or not, is relevant.The meaning of a legitimate or illegitimate last voyage iswell established in the cases of: The Dione12 The Peonia13 andThe Gregos14. We shall briefly detail the decision of the courtin the Dione and the Peonia case for a proper appreciation of11 Lansat Shipping Co Ltd v. Glencore Grain BV “The Paragon” [2009] EWHC 551 (Comm)  12 Ibid n.313 Ibid n.714 Torvald Klaveness AIS v. Arni Maritime Corp.(The Gregos) [1994]1 WLR 1465,HL

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the issues whereas the Gregos case shall be discussed later inthis work.

The Dione case:15

Brief Facts of the case is as follows: By a time-charter datedMar. 6, 1970, the shipowners let the steam tanker Dione to thecharterers on "Baltime 1939" form. Clause 1 of said charterstated inter alia that the vessel was chartererd: for aperiod of 6 (six) months time charter 20 days more or less inCharterers’ option from the time the Vessel is delivered andplaced at the disposal of the Charterers when/where readySAVANNAH. By cl. 7 she was to be redelivered on the expirationof the charter-party. She was delivered to the charterers onMar. 8, 1970, and after that made two voyages each of approx73 days length. On Aug. 2 charterers gave an order to send theDione on a third voyage. Having regard to the periods of thefirst two voyages the charterers could not reasonably haveanticipated redelivery by Sept. 28, that is, 6 months and 20days from Mar. 8. A reasonable estimate for redelivery wouldhave been the middle of October. In fact, she was redeliveredon Oct. 7, thus delay in redelivery totalled to 9 days. Thecharterers paid the contractual rate of hire from the time ofdelivery on Mar. 8 to that of redelivery on Oct. 7, but theowners claimed damages of £6050 in respect of the period fromSept. 28. A dispute arose and was referred to arbitration. Thetwo arbitrators found in favour of the charterers, and statedtheir award in the form of a special case, the question forthe decision of the Court being: Whether on the trueconstruction of the charter the Charterers were or were not inbreach in failing to redeliver the Dione for 8.416 days afterthe latest date for redelivery specified in Clause 1 of thecharter: namely 28th September 1970.In the Supreme Court of Judicature Court of Appeal, BeforeLord Denning, M.R., Lord Justice Orr and Lord Justice Browne.October 11, 14, 15, 1974.

15 Alma Shipping of Monrovia v. Mantovani (‘The Dione’) 1975 1 Lloyd’s Rep 115

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Lord Denning, M.R. held as follows:

The point is really a short point of construction. What is themeaning of the words "for a period of six months time charter20 days more or less"? These words have to be construed inrelation to these surrounding circumstances. But I will firststate some propositions which can be derived from the cases:

a. Implied margin or allowanceWhen a charterparty is for a stated period - such as"three months" or "six months" - without any expressmargin or allowance, then the Court will imply areasonable margin or allowance. The reason is because itis not possible for anyone to calculate exactly the dayon which the last voyage will end. It is legitimate forthe charterer to send her on a last voyage which mayexceed the stated period by a few days. If the vesseldoes exceed the stated period - and the market rate hasgone up – nevertheless the charterer is only bound to paythe charter rate until she is actually redelivered, seeGray and Co. v Christie, (1889) 5 T.L.R. 577: WatsonSteamship Co. v Merryweather & Co., (1913) 18 Com. Cas.294 at p. 300 (without the handwritten words).

b. No margin or allowance express or impliedBut it is open to the parties to provide in thecharterparty - by express words or by implication – thatthere is to be no margin or allowance. In such a case thecharterer must ensure that the vessel is redeliveredwithin the stated period. If he does not do so – and themarket rate has gone up - he will be bound to pay theextra. That is to say, he will be bound to pay thecharter rate up to the end of the stated period, and themarket rate thereafter, see Watson v Merryweather(1913)18 Com. Cas. 294 (with the handwritten words).

c. Express margin or allowanceIt is also, in my opinion, open to the parties themselvesto fix expressly what the margin or allowance shall be.In that case the charterer must ensure that the vessel is

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redelivered within the permitted margin or allowance. Ifhe does not do so - and the market rate has gone up - hewill be bound to pay the extra. That is to say, he willbe bound to pay the charter rate up to the end of theexpressly permitted margin or allowance, and the marketrate for any overlap thereafter, see PrebensensDampskibsselskabet A/S v Munson S.S. Line, (1919) 258Fed. R. 227 by the U.S. Circuit Court of Appeals, SecondCircuit.

In view of those three propositions, when I speak of the"charter period", I mean the stated period plus or minus anypermitted margin or allowance, express or implied. Therefollows these two propositions:

If the charterer sends the vessel on a legitimate last voyage– that is, a voyage which it is reasonably expected will becompleted by the end of the charter period, the shipowner mustobey the directions. If the vessel is afterwards delayed bymatters for which neither party is responsible, the charter ispresumed to continue in operation until the end of thatvoyage, even though it extends beyond the charter period. Thehire is payable at the charter rate until redelivery, eventhough the market rate may have gone up or down, see London &Overseas Freighters Ltd v. Timber Shipping Co. S.A. [1972]A.C. 1; [1971] 1 Lloyd’s Rep. 523.

If the charterer sends the vessel on an illegitimate lastvoyage – that is, a voyage which it cannot be expected tocomplete within the charter period, then the shipowner isentitled to refuse that direction and call for anotherdirection for a legitimate last voyage. If the chartererrefuses to give it, the shipowner can accept his conduct as abreach going to the root of the contract, fix a fresh charterfor the vessel, and sue for damages. If the shipowner acceptsthe direction and goes on the illegitimate last voyage, he isentitled to be paid – for the excess period – at the currentmarket rate, and not at the charter rate, see Meyer v

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Sanderson, (1916) 32 T.L.R. 428. The hire will be payable atthe charter rate up to the end of the charter period, and atthe current market rate for the excess period thereafter.

If this clause had said simply "six months time-charter"without any express margin or allowance, I should have thoughtthat there would be implied a reasonable margin or allowance.But this clause expressly defines the margin as "20 days moreor less". That leaves no room for any implied margin orallowance.

It follows also that it was illegitimate for the charterers tosend her on the third voyage, seeing that they could notreasonably expect the vessel to complete it by the permittedmargin, that is, by Sept. 28, 1970.

The Peonia case:16

The facts of the facts of the case is as follows: By the timecharter on the New York Produce Exchange form, made betweenthe appellants as disponent owners and the respondents ascharterers, the vessel Peonia was let to the respondentscharterers for the period of time which was described in thefollowing wording in lines 13 to 15 of the charterpartycontract as below: The said owners agree to let and the saidcharterers agree to hire the said vessel from the time ofdelivery for about minimum ten months’ maximum twelve months’time charter, exact duration in charterers’ option. Charterershave further option to complete last voyage . . The vessel was delivered under the charter on June 11, 1987and at the beginning of May, 1988 the charterers directed thatthe vessel should perform a voyage which at that time was notexpected to be completed before about July 19, 1988 at theearliest. Even giving full allowance for the word "about" inthe provision quoted, it was also common ground that had thisvoyage been undertaken the vessel could not have been

16 Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia) [1991] 1 Lloyd’s Rep 100.

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redelivered before the expiry of the stipulated period ofabout minimum 10 months maximum 12 months.

The disponent owners refused to comply with the direction onthe grounds that the charterers had no right to send thevessel on a voyage which they knew could not be completedwithin the stipulated period. The charterers contend that, onthe contrary, ‘the further option to complete the last voyage’gave them just such a right. The arbitrators decided thisissue in favour of the charterers.

Mr. Justice Saville in his judgment delivered in the HighCourt on July 31, 1990 decided for the owners, stating interalia that: “leaving aside for the moment the further option,the charterers had in this case the choice, within the limitsspecified, of when to perform their redelivery obligation.Having expressly agreed upon a degree of flexibility, it couldhardly be suggested that the parties must impliedly haveagreed to any further flexibility. Neither business efficacynor necessity would require such implication, for although theexigencies of maritime business make it difficult, if notimpossible, to comply with a fixed date, the parties haveexpressly provided for this potential difficulty, so nothingfurther is required to be implied. Thus, in similar cases,while the Courts have been prepared to imply a degree offlexibility where the parties have expressed only a specificdate for redelivery, they have not been prepared to imply afurther period of flexibility over and above that expresslystipulated by the parties. In the language of the cases andbooks, it is common ground between the parties that withoutthe further option the charterers have no contractual right tosend the vessel on an illegitimate last voyage.

What are the reasons of business efficacy which should excusethe charterers from compensating the owners for loss sustainedthrough the charterers’ failure to comply with their expresspromise to redeliver the vessel at the end of the agreedperiod for the charter service? No doubt the charterers would

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regard it reasonable were they to be so excused, but thecontract is perfectly effective without any such protection.As to necessity, the charterers have promised when they willredeliver the vessel. While that promise is qualified byexpress flexibility over the exact date for redelivery, it isnot qualified by any expression such as "best endeavours" orthe like, so that unless there are other relevant provisionsin the contract the charterers have on the face of it takenthe risk of not being able to perform this part of theirbargain. In the nature of a charter-party such as the oneunder consideration, many of the obligations of both partiesare often expressed in absolute terms and each takes the riskthat he will not be able to perform his obligations howevercarefully he may try to do so. If that risk is thought in anycase to be unacceptable it is open to each party to seek toqualify what would otherwise be an absolute obligation byinserting appropriate qualifying terms into the contract.---it seems to me that on the true construction of this charterthe further option gave the charterers the right to complete alast legitimate voyage without being in breach, but no rightto send the vessel on an illegitimate last voyage.”

In the Supreme Court of Judicature Court of Appeal, beforeLord Justice Slade, Lord Justice Balcombe and Lord JusticeBingham. July 24, 25 and 26, 1990

Lord Justice Bingham17:

It would seem to me (although challenged by the charterers)that every time charter must have a final terminal date, thatis a date by which (in the absence of an exonerating cause)the charterer is contractually obliged to redeliver thevessel. Where the law implies a margin or tolerance beyond anexpiry date stipulated in the charter-party, the finalterminal date comes at the end of such implied extension. Whenthe parties have agreed in the charter-party on the margin ortolerance to be allowed, the final terminal date comes at the

17 At pp.107-116

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end of such agreed period. But the nature of a time charter isthat the charter is for a finite period of time and when thefinal terminal date arrives the charterer is contractuallybound (in the absence of an exonerating cause) to redeliverthe vessel to the owner. I shall hereafter use the expression"final terminal date" to mean the final contractual date forredelivery, after the expiry of any margin or tolerance whichthe parties may agree or the law imply. The cases and booksdraw a distinction between two cases which have become knownas "the illegitimate last voyage" and "the legitimate lastvoyage". In the former case the charterer gives orders for theemployment of the vessel which cannot reasonably be expectedto be performed by the final terminal date. He is thereforeseeking to avail himself of the services of the vessel at atime when the owner had never agreed to render such services.It is accordingly an order which the charterer is not entitledto give (just as an order to visit a prohibited port would be)and in giving it the charterer commits a breach of contract(perhaps a repudiatory breach but that we need not decide).The owner need not comply with such an order, because he hasnever agreed to do so. Alternatively, he may comply with theorder although not bound to do so: if he does comply, he isentitled to payment of hire at the charter-party rate untilredelivery of the vessel and (provided he does not waive thecharterer’s breach) to damages (being the difference betweenthe charter rate and the market rate if the market rate ishigher than the charter rate) for the period between the finalterminal date and redelivery. In the further alternative, if(which we do not decide) the charterer’s breach isrepudiatory, the owner may accept the repudiation, treat thecharter as at an end and claim damages. In this first case,the charterer’s order is illegitimate because he was notcontractually entitled to give it, and the voyage (whetherperformed or not) is stigmatised as illegitimate because it isone the charterer could not under the charter-party lawfullyrequire the owner to perform. … If A agrees to paint B’sportrait or to build a house for B he is, in the absence of

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special contractual provision, in breach of contract if hedoes not do so by whatever the law may regard as the finalterminal date for performance. If A’s failure to perform iscaused by B’s failure to attend for sittings or by B’s failureto obtain planning permission when he has undertaken to do so,A is not in breach. But it does not in the ordinary way and inthe absence of any frustrating event avail A to establish thathe could not obtain colours or canvass or was unavailable topaint, or that he could not obtain building materials or hirelabour, or that he had so much work he could not fit in thework for B.

The Dione, [1975] 1 Lloyd’s Rep. 115 is another important case,containing in Lord Denning’s judgment the most detailedconsideration of legitimate and illegitimate last voyages inany of the authorities. … He reached this conclusion (at p.118):

It follows also that it was illegitimate for the charterers tosend her on the third voyage, seeing that they could notreasonably expect the vessel to complete it by the permittedmargin, that is, by September 28, 1970.

Nor, in the ordinary way and in the absence of any frustratingevent, does it avail A to show that he used his bestendeavours or acted with due diligence to paint the portraitor build the house. The law of contract concentrates on A’sdeeds, not his thoughts, motives or intentions. He either doeswhat he agreed to do by the time he agreed to do it, or hebreaches the contract and pays the consequence in damages.

… I do not regard the language of line 15 as at all apt toconvey the meaning for which the charterers contend. The factsof the present case and of other decided cases make clear thatwhen a charterer orders a vessel on a voyage which cannotreasonably be expected to be performed in time to permitredelivery by the final terminal date, the owner objects thereand then, whether he refuses to comply or agrees to performreserving all his rights. This is what one would expect, since16 | P a g e

the owner is probably as well able to calculate time as thecharterer and may well have made commitments with reference tothe final terminal date. What the charterers are reallyclaiming is not an option to complete, since no one doubtsthat a voyage once begun must in any ordinary circumstances becompleted. What they are really claiming is a right to requirethe owners not to complete but to embark on an illegitimatelast voyage. That is by definition a last voyage which is notunder the charter-party but outside it. If the charterers intruth sought the right they now claim I cannot find thatintention expressed in line 15.

Slade, L.J.18

I know of no authority which explicitly supports theproposition that the Court will be prepared to imply somefurther term, beyond any margin or tolerance which it will bewilling to imply in ascertaining the final terminal date,which will have the effect of rendering charterers’contractual obligation to redeliver by the final terminal datean obligation merely to use their best endeavours to do so bythat date. If the Court had been prepared to imply a furtherterm of this broad nature, I cannot see the need for theimplication of a margin or tolerance. As a matter ofprinciple, it would seem to me right that, save in so far asotherwise agreed and within the limits of a proper margin ortolerance, the risk of unexpected delays, save for those whichare due to the fault of the owners, should fall on charterers,such risk to include the risk of the market rate of hireexceeding the charter-party rate during the excess period.

Therefore it is a settled principle of law that anillegitimate last voyage is a voyage which cannot reasonablybe expected to be performed by the (final) charterpartyredelivery date. It is, thus, an order that the charterer isnot entitled to give and in doing so he commits a breach ofcharterparty. In contrast, a legitimate last voyage is one

18 P.119

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which can reasonably be expected to be completed within thetime for redelivery under the charterparty.  

In the event of a legitimate last voyage order, but where thevessel is redelivered after the contractual redelivery date,the charterers are liable for hire at the charterparty rateuntil the contractual redelivery date and thereafter at themarket rate to the actual date of redelivery (where the marketrate is higher than the charter rate).19 

Where a last order given by charterer is illegitimate, anowner has a choice either to reject or accept that order.20  Ifthe order is for a voyage that the vessel cannot be expectedto complete within the charter period, owners are entitled toreject that order and call for fresh orders for a legitimatelast voyage. However, if the charterers continue to insistthat the voyage can be completed in the charter period andpersist in that order, if owners are correct that the voyagecannot reasonably be completed in the charter period,charterers are at risk that their conduct will amount to arepudiation of the charterparty.21  In contrast, if the ownersaccept an illegitimate last voyage order there are twopossible outcomes: 

1. Provided the charterers’ breach is not waived, hire ispayable at the charter rate until contractual redeliveryas well as damages for the overrun period - being thedifference between market rate, if higher than thecharter party rate, and charter rate for the periodbetween final terminal date and redelivery, or    

2. If the charterers’ breach in giving an order that isillegitimate amounts to a repudiation of the charter, andowners accept the repudiation, the charter is at an endand owners can (a) nonetheless, and without waivingcharterers’ repudiatory breach, agree to perform thatvoyage but at a negotiated rate of hire that is no doubt

19See The Peonia case.(Supra)20 See The Gregos case(Supra)21 Ibid

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closely related to the market rate, or (b) fix a charterwith some other charterer an claim damages (to the extentof any loss in comparison to hire that would have beenearned but for charterers repudiation) .  

With respect to repudiatory conduct it is thought important tostress that the mere giving of an illegitimate order will notof itself amount to a repudiatory breach. Indeed, theobligation to redeliver the vessel within the contractualperiod is probably an innominate term. In order to amount torepudiatory breach the charterers conduct must amount to ordemonstrate an intention that suggests they no longer wish tobe bound by the charterparty. For example in The Gregos, thevessel was on time charter for “about 50 to maximum 70 days”with the latest redelivery date being 18 March 1988. On 9February charterers gave orders to proceed to the RiverOrinoco to load a cargo for shipment to Fos, where the vesselshould have been redelivered. At the time, these ordersallowed for timely redelivery. However, another vessel ranaground and blocked the navigable channel in Orinoco forseveral days and the Gregos only arrived at the load port on25 February, by which time the final voyage to Fos could nolonger be completed by 18 March. The owners were unwilling toproceed with the laden voyage to Fos and asked charterers forfresh valid orders, failing which they would treat thecharterers as being in repudiatory breach and withdraw thevessel. The charterers, though, persisted with the originalorders for a loaded voyage to Fos such that it was clear thatthey had no intention of giving fresh valid orders and ownerswere entitled to treat the contract as at an end.  

Interestingly in The Paragon owners had also argued that anillegitimate last voyage order falls outside the scope of thecharterparty and, thus, if an owner agreed to perform thatvoyage no damages are payable. Instead, an owner performingsuch a voyage would be entitled to remuneration on a quasicontractual or quatum meruit basis which, absent any agreementon the rate, would be the market rate at the time of the

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voyage. Clarke LJ rejected this argument. He referred to LordMustill speech in The Gregos and said “that too much attentionwas paid to the order for the last voyage and too little tothe owners’ promise to furnish the services of the vessel,which was what the contract was about”. Therefore he concludedthat where an owner chooses to perform a last voyage, he isdoing so under the contract, despite the voyage beinglegitimate or illegitimate, and is bound by the terms of thecontract but entitled to damages for any loss caused by thebreach which was consistent with the general principle that“where of an innocent party chooses to perform the contractafter a repudiatory breach of a contract by the other party,he continues to be bound by the terms of the contract but isentitled to damages for any loss caused by the breach”.  

It is also noteworthy that Clarke LJ distinguished Steven vBromley & Son (1919) 2 KB 722, on which owners have relied, onthe facts. In that case the facts implied that the charterershad made an offer to load general cargo at the current marketrate of freight and the owner had accepted that offer,therefore effectively entering into a new contract.  

In conclusion, the decision in The Paragon re-confirmed well-established principles supporting the basis of claims for lateredelivery. The measure of damages for late redelivery is thesame, whether redelivery is a consequence of a legitimate lastvoyage order that over runs or an illegitimate order that isperformed, that is to compensate owners at the market rate forthe overrun period. (However, note the decision in The Achilleascase bellow)

RECOVERABLE DAMAGES In its recent well publicised judgment, the House of Lordsoverruled Lord Justice Rix’s judgment in the Court of Appealin Transfield Shipping Inc. v Mercator Shipping Inc (The Achilleas).22 and heldthat in cases of late redelivery under a charterparty an ownercannot recover damages for profit lost under a subsequent

22 [2007] 1 Lloyd’s Rep 19, [2007] 1 All ER (Comm) 379

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fixture. Instead, the charterer’s liability is limited to thedifference between the contractual rate of hire and theprevailing market rate for the period of the overrun. In the lead judgment, Lord Hoffmann reviewed the test for“remoteness of damage”, which is the legal test used to decidewhich types of loss caused by a breach of contract may becompensated by an award of damages. If there is no explicitclause in the contract dealing with the assessment of damages,the law supplies a standard test which specifies the extent ofresponsibility implicitly undertaken by the parties. AlthoughLord Hoffman’s judgment reflects the existing legal positionin principle, it represents a fundamental shift in how thetest is, in fact, to be applied.    

The facts of The Achilleas are as follows: The vessel had beenchartered out for a period of “about 5 to 7 months” at a dailyrate of US$ 13,500 and extended by a further maximum 7 monthsat a higher rate. Under the extended fixture the latestredelivery date was 2 May 2004 (at midnight). The vessel was,in fact, delivered over eight days late on 11 May 2004.23 

On 21 April the owners fixed the vessel to Cargill at a dailyrate of US$ 39,500 with a laytime period of 28 April to 8 May.By 5 May it was clear the vessel would miss the cancellationdate under this fixture. Cargill therefore agreed to extendthe cancellation date to 11 May, and because the market wasfalling owners agreed to reduce the daily rate of hire by US$8,000. Both the original and the reduced rates under theCargill fixture reflected the respective market rates at thetime they were agreed. 

Owners claimed as damages for late redelivery the drop in theCargill charter hire rate for the entire period of that23 The Charterers gave due notice under the charterparty as follows:8 April 2004 – 20 days approximate notice of redelivery between 30 April an2 May.15 April – 15 days approximate notice of redelivery between 30 April an 2 May.20 April – 10 days definite notice of redelivery between 30 April an 2 May.

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fixture (which lasted 191 days) - a total of US$ 1,364,584. Inthe alternative, owners claimed US$ 158,301.17 which was thedifference in the market rate of hire and the contractual rateof hire for the period of the overrun. 

The arbitrators by a majority awarded the higher amount andthis award, plus the reasons behind it, were upheld byChristopher Clarke J in the High Court and by the Court ofAppeal. Rix LJ, who gave the only judgment in a unanimousCourt of Appeal, reviewed the law relating to redelivery andthe related issue of illegitimate last voyages, repeating thewell known extract from Lord Mustill’s judgment in The Gregos24  which highlights the parties’ conflicting interests as a timecharterparty reaches its end. Rix LJ confirmed thatirrespective of whether the last voyage is legitimate orillegitimate, if the final redelivery date is missedcharterers will be in breach.

Charterers appealed to the House of Lords, arguing that theloss of profit claimed in respect of the Cargill fixture wastoo remote to be recoverable, and that there was precedent tothe effect that owners could only recover the difference forthe period of the overrun.  

Historically, the leading authority on the damages that aninnocent party could recover following a breach of contractwas the nineteenth century case, Hadley v Baxendale.25 The rulein Hadley v Baxendale can be summarised as follows: thedamages a claimant may recover for breach of contract are suchas may fairly and reasonably be considered either as;

a. arising naturally, ie according to the usual course ofthings, from such breach of contract itself; or 

b. such as may reasonably be supposed to have been in thecontemplation of the parties at the time they made thecontract as the probable result of it  

24 Ibid n.1425 (1854) 9 Exch 341

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Following considerable criticism, both academic and judicial,of the phraseology used in this case, and restatement of therule, definitive guidance on its application was provided bythe House of Lords in The Heron II,26 which was the leadingauthority in this area until The Achilleas.

The Heron II involved late delivery of sugar following a breachby a shipowner of its charterparty obligations at a time whenthe market was falling. Charterers successfully claimed thedifference between the market price of the sugar when it wasactually delivered, and the (higher) market price the sugarwould have realised had it been delivered on time.  

Whilst there was some variance in their Lordships’ judgments,the leading statement in that case, which has been relied onby subsequent courts (including both first instance and onappeal in The Achilleas), is that of Lord Reid who redefined thetest in Hadley v Baxendale as being whether the loss in questionis:

…….of a kind which the defendant, when he made the contract, ought tohave realised was not unlikely to result from the breach… the words‘not unlikely’ denoting a degree of probability considerably less thanan even chance but nevertheless not very unusual and easilyforeseeable. 

The two part test in Hadley v. Baxendale was thus reduced to asingle question and this has largely been how the courts haveapplied it.  

In The Achilleas charterers sought to argue that the lost profitunder the Cargill fixture was capable of recovery only underthe second limb of the test in Hadley v Baxendale and that becausethe Cargill fixture could not have been in the contemplationof the parties at the time the contract was made, the loss wastoo remote and could not be recovered. To quote from thecharterers’ skeleton argument; “A charterer guilty only of ashort late redelivery is not to be faced in law with uncappedloss of profit claims based on unknown contracts of unknown26 [1969] 1 AC 350

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length made at unknown times..”. Instead, charterers arguedthat the “conventional” measure of loss in cases such as WatsonSteamship v Merryweather27, The Dione28 and The Peonia,29was thedifference between the market rate and the charter rate forthe period of the overrun, and that such loss came within thefirst limb of the test in Hadley v Baxendale. The Charterersstressed that damages for profits lost on a follow-on fixturehad never before been awarded for late redelivery of avessel. 

Rix LJ dismissed the suggestion that the authorities, asreviewed by him, supported the charterers’ abovecontentions. The courts in those cases had not had to addressthe question of subsequent fixture losses. In fact, the onecase which did touch, albeit in a most indirect way, on thispoint was The Gregos30 , which, as Rix LJ read it, did little tohelp the charterers’ case. Rix LJ held that the owners wereentitled to damages in an amount equivalent to the profit theywould have made had the original follow-on fixture beenperformed for reasons similar to those given by the majorityof the arbitrators and Christopher Clarke J. 

However, charterers’ above arguments prevailed in the House ofLords. The principle to be determined, in Lord Hoffmann’sview, was framed as follows: 

Is the rule that a party may recover losses which were foreseeable(“not unlikely”) an external rule of law, imposed upon the parties toevery contract in default of express provision to the contrary, or isit prima facie an assumption about what the parties may be taken tohave intended, no doubt applicable in the majority of cases but capableof rebuttal in cases in which the context, surrounding circumstances orgeneral understanding in the relevant market shows that a party wouldnot reasonably have been regarded as assuming responsibility for suchlosses.31

27 (1913) 18 Com Cas 29428 Ibid. n. 329 Ibid n. 730 Ibid. n. 1431 Lord Hoffmann at para. 9

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Lord Hoffmann preferred the latter view. He held that thearbitrators factual finding - that a broker would have saidthat the “not unlikely” result arising from a late redeliverywould include missing dates for a subsequent fixture - was notdeterminative of the question whether owners’ losses were tooremote. Instead, he considered that liability for damagesshould be founded “upon the intention of the parties(objectively ascertained) because all contractual liability isvoluntarily undertaken”.  

Put another way, Lord Hoffman considered that it must be inprinciple wrong to hold someone liable for risks for whichpeople entering into such a contract in their particularmarket would not reasonably be considered to haveundertaken. He noted that the findings of the majorityarbitrators showed that they considered their decision to becontrary to what would have been the expectations of theparties, but dictated by the rules in Hadley v Baxendale, asexplained in The Heron II. In his opinion, these rules are “notso inflexible; they are intended to give effect to thepresumed intentions of the parties and not to contradictthem”.    

But how are the presumed intentions of the parties to bedetermined? In the majority of contracts the parties will notexpressly identify all of the liabilities for which they areassuming responsibility. As indicated above, if the partieshave not articulated their intentions expressly, the courtwill imply a term into the contract to give effect to theirpresumed intentions. In either case, the identification of thelosses for which the parties intended to assume responsibilitywill turn on the construction of the contract as a whole, inits commercial setting.    

One difficulty arising from the new approach is that whereasthere are established principles to guide the court indeciding whether a term should be implied into a contract -namely business efficacy, and the “officious bystander” test -

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there are no established principles to guide the court ininterpreting the extent of the risk the parties objectivelyhave assumed under a contract. For this reason there isconsiderable scope for uncertainty. 

A further, related, issue is that until the House of Lord’sdecision in The Achilleas, a loss would not be too remote if itwas of a “type” or “kind” that the contract breaker shouldhave realised, at the time of entering into the contract, was“not unlikely” to arise as a result of the breach in question(see Lord Reid’s test for remoteness in The “Heron II”, above).

Following Lord Hoffmann’s logic it is difficult to see how onecan still treat the type and extent of loss differently. Onthe face of it, a contract-breaker who has not been paid apremium arguably will not be taken to have assumed liabilityfor large and unpredictable risks.  

REDELIVERY REQUIREMENTSThe appropriate place for redeliveryThe port of redelivery is either nominated in thecharterparty, or prescribed as being within a certain definedrange, for example “Vessel to be delivered (redelivered) ondropping outward pilot at XYZ town” or “Vessel to be delivered(port at owner’s option) and redelivered (port at charterer’soption) in the Mediterranean”. It fell for the court to decidein The Sanko Honour32 whether or not the charterer’s chosen portof redelivery complied with the charter terms, namely within a“Range from Japan to Persian Gulf”. The court held that thisgeographical range embraced Japan to Honolulu, the port wherethe vessel was delivered. Hobhouse J indicated that under theprovision Japan was the central locus. Hence, the chartererwas not in breach of the redelivery clause. Parker J held inThe Bunga Kenanga33 that damages for delivery at the wronglocation are assessed at net loss to the owner after takinginto account any remuneration received for alternative32 Reardon Smith Line Ltd v Sanko Steamship Co Ltd [1985] 1 Lloyd’s Rep 418.33 Malaysia International S.S. Corp v Empresa Cubana de Fletes [1981] 1 Lloyd’s Rep 518

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employment. The vessel was re-delivered at Rotterdam when aFar East port was specified in the charter party. However,Mustill J in The Rijn34 held that where a particularlydisadvantageous substitute fixture back to the nominated portwas negotiated by the owners, after a vessel had beenredelivered to the wrong port, damages would be based on themost economic form of voyage that would have righted thewrong. In this case the cheapest solution would have been tosail the vessel back into range under ballast. The court maynot have been that sympathetic with the owners since they hadrejected an invalid order for a final voyage which would havegot the vessel back in range albeit outside the charterperiod. It would appear that the poor condition of the vesselhad resulted in extensive off hire periods which in turncontributed to theissuing of the invalid order. However, sincean arbitrator had held that the poor condition of the vesselwas not so bad as to invalidate the charter itself, there wereno grounds for concluding that the owners had caused theproblem in the first place.

Condition of the vessel on redeliveryThe ship owner can recover from the charterer for any damagesuffered by the vessel which is attributable to the charterer,in particular incidents covered by E & I Clauses. Thus in TheMaistro35 Staunton J held that the charterer was liable for thecosts incurred by the owner in cleaning the vessel inreadiness for a subsequent hire. It was held that since it isthe owner’s duty to maintain the vessel, the charterer wouldnot be liable for defects that the owner had a duty to repair.It is common for the charter party to provide a clause such asthe following :- “the vessel to be redelivered on theexpiration of the charter in the same good order as whendelivered to the charterers (fair wear and tear excepted)” in34 Santa Martha Baay Scheepvaart & Handelsmaatschappij NV v Scanbulk A/S [1981] 2 Lloyd’s Rep 26735 Aurora Borealis Compagnia Armadora SA & Buenamar Compagnia Nav S.A. v Marine MidlandBank N.A. [1984] 1 Lloyd’s Rep 646

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Chellew Navigation v. Appelquist36 Fair wear and tear would embrace anydamage that would be normally attributable to the conduct of aparticular trade and thus not recoverable. It is clear thatthe owner cannot refuse to accept redelivery if the vessel hasnot been repaired as stated in,Wye SS Co v Compagnie Paris-Orleans,37

but having taken delivery he is then entitled to have the workdone and bill the charterer, according to The Puerto Buitrago38

which concerned a demise charter party and subsequentlyconfirmed in The Rozel39 In such a case the ship owner cannotclaim hire for the repair time. However, the owner can claimlost profit which perhaps amounts to the same thing, or bettereven since this would be based on the market rate in anycase.40Mustill J confirmed that the charter party must beterminated in The Rijn.41 An express clause to cover this mightbe as follows“Against paying x $ in lump sum compensation to the owners,charterers have the right to redeliver the vessel in lieu ofcleaning.” In The Pantelis A Lemos42 it was specified that theowner only had to take redelivery of the vessel in the eventof general damage but that in the event of damage affectingthe vessel’s class repairs had to be effected beforeredelivery. Nonetheless where the charterer failed to carryout the repairs the owner could not refuse to take redeliveryof the vessel.It is usual for the charter party to provide for a survey attermination either by independent surveyors or by surveyorsappointed by the charterer or owners or even both. For example36 (1933) 38 Com Cas 21837 [1922] 1 KB 61738 Attica Sea Carriers Corp v Ferrostaal-Poseidon Bulk Reederei Gmbh [1976]1 Lloyd’s Rep 253 and see M.Dockray at p424. The facts are peculiar. The vessel was so old and decrepid the charterers had it towed across the Atlantic, discharged cargo then had it towed to Kiel. The vessel was worth a mere $500,000 in scrap but required $2M repairs. Even if repaired its value would only be $1M. The charterers admitted liability for 400,000 worth of repairs.39 [1994] 2 Lloyd’s Rep 16140 See Ibid n. 3741 See Ibid n. 3442 Somelas Corp v Gerrards Rederi A/S [1980] 2 Lloyd’s Rep 102

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:- “Unless otherwise mutually agreed the owners and charterersshall each appoint surveyors for the purpose of determiningthe condition of the vessel at the time of delivery andredelivery hereunder. Surveys whenever possible to be doneduring service, but if impossible any time lost for on-hiresurvey to be for owners’ account and any time lost for off-hire survey to be for charterer’s account.” or alternatively “Ajoint survey at delivery to be arranged by owners and effectedin their time. A joint survey on redelivery to be arranged bycharterers and effected on their time. Cost for both surveysto be shared equally.”There are other requirements for redelivery of vessel in acharterparty as matter of custom or contract but for thepurpose of this work we shall be limiting our discussions onthe above two requirements which in our opinion constitutesthe paramount requirements.

CONCLUSIONGiven the uncertainty that inevitably attaches to maritimeventures, no matter how careful an owner or charterer is, latedelivery will always be a feature of chartering practice.There is no excuse for either party deliberately misleadingthe other or for deliberately engaging in conduct whichjeopardises the interests of the other. Good managementpractice can minimise the occurrence of late delivery butcannot completely guarantee that it will not occur. Whilst thelegal rules governing the allocation for responsibility forlate delivery and late redelivery are complex, they are atleast reasonably certain. Minor issues may be clarified astime passes but no major changes are likely. That being thecase, the most significant reason for future litigation forlate delivery or late redelivery is likely to arise out of badcontract draftsman-ship.

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