Lansat Shipping Company Ltd v Glencore Grain BV [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE BLAIR,Mr Justice Blair |
| Judgment Date | 25 March 2009 |
| Neutral Citation | [2009] EWHC 551 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 25 March 2009 |
| Docket Number | Claim No: 2008 Folio 525 |
[2009] EWHC 551 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Hon MR Justice Blair
Claim No: 2008 Folio 525
Mr Michael Davey (instructed by Ince & Co) for the Appellant
Mr Simon Birt (instructed by Birketts LLP) for the Respondent
Hearing date: 23rd February 2009
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
………………………..
Mr Justice Blair:
This is an appeal against an arbitration award made on 7 May 2008. It is brought under s. 69 Arbitration Act 1996, permission to appeal having been granted by Andrew Smith J on 1 October 2008 under s. 69(3)(c)(ii) on the basis that the question raised was one of general public importance. The award concerned a preliminary issue in connection with a vessel's last voyage before redelivery. The issue is whether a clause in the time charter which adjusted the hire to the market rate for a thirty day period before the time for redelivery was a penalty (and therefore unenforceable). The London Maritime Arbitrators Association tribunal decided this question in the affirmative, and issued an interim declaratory award to that effect.
The facts are as follows. The appellant Owners let their vessel “Paragon” to the respondent Charterers on a time charter dated 23 November 2006. By the charter (which was on the New York Produce Exchange form with additions and amendments), the Charterers agreed to hire the vessel “from the time of delivery, for about minimum 3 to about 5 months (about means +/- 15 days”. The vessel was delivered on 29 November 2006. Allowing for the plus 15 days margin therefore, the last possible day for lawful redelivery was 14 May 2007. In fact, the last voyage under the charter took 77 days, and it is common ground that the vessel was redelivered on 20 May 2007, which was 6.166 days late.
The Charterers have 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. But as the tribunal put it, this is no ordinary claim for damages for late redelivery. In reliance on the terms of the charter, the Owners also claim hire based on the market rate for thirty days before the latest date for redelivery. The correct market rate is not agreed, but at this time, rates were rising, and to give some idea of the ambit of the dispute, the additional claim is at a market rate of US$ 46,083.82 per day as opposed to the charter rate of US$29,500 per day. On this basis, the Owners' claim amounts to US$471,603.32 over and above what the Charterers have already paid.
The basis for the claim in respect of the thirty day period is clause 101 of the charter, which provided as follows:
“The Charterers hereby undertake the obligation/responsibility to make thorough investigations and every arrangement 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 30 th day prior to the maximum period [d]ate until actual redelivery of the vessel to the Owners.”
Various issues arise in the reference, including whether there was a breach of clause 101, whether the second sentence of the clause is a penalty clause and therefore unenforceable, and (if there has been a breach and if the clause is enforceable), the proper approach to ascertaining the market rate. As I have indicated, the penalty issue was taken as a preliminary issue, and it is this which is the subject of the Award. Nothing in this judgment impinges on the other questions which are yet to be decided. The tribunal having held that the second sentence of clause 101 is a penalty, the Owners ask the court to allow the appeal and to vary the award so as to declare that clause 101 is enforceable.
An illegitimate last voyage
To understand the arguments, it is necessary to appreciate the concept of the “illegitimate last voyage” and its interface with the law of redelivery. The jurisprudence was explained by Rix LJ in the Court of Appeal in The Achilleas [2007] 2 Lloyd's Rep 555, 558–565. In the case of a time charter, the charterer is contractually bound to redeliver the vessel to the owner at the end of the agreed period. However uncertainties of various kinds mean that this not necessarily a straightforward exercise. The commercial pressures operating on the parties as the time for redelivery approaches are explained in a passage from the judgment of Lord Mustill in The Gregos [1995] 1 Lloyd's Rep 1 at 4 as follows:
“My Lords, in merchant shipping time is money. A cargo ship is expensive to finance and expensive to run. The shipowner must keep it earning with the minimum of gaps between employments. Time is also important for the charterer, because arrangements must be made for the shipment and receipt of the cargo, or for the performance of obligations under subcontracts. These demands encourage the planning and performance of voyages to the tightest of margins. Yet even today ships do not run precisely to time. The most prudent schedule may be disrupted by regular hazards such as adverse weather or delays in port happening in an unexpected manner or degree, or by the intervention of wholly adventitious events.
Where the charterparty is for a period of time rather than a voyage, and the remuneration is calculated according to the time used rather than the service performed, the risk of delay is primarily on the charterer. For the shipowner, so long as he commits no breach and nothing puts the ship off-hire, his right to remuneration is unaffected by a disturbance of the charterer's plans. It is for the latter to choose between cautious planning, which may leave gaps between employments, and bolder scheduling with the risk of setting aims which cannot be realised in practice.
This distribution of risk holds good during for most of the chartered service. As the time for redelivery approaches things become more complicated. (The word “redelivery” is inaccurate, but it is convenient, and I will use it). If the market is rising, the charterer wants to have the use of the vessel at the chartered rate for as long as possible. Conversely, the shipowner must think ahead to the next employment, and if as is common he has made a forward fixture he will be in difficulties if the vessel is retained by the charterer longer than had been foreseen. This conflict of interest becomes particularly acute when there is time left for only one more voyage before the expiry of the charter, and disputes may arise if the charterer orders the ship to perform a service which the shipowner believes will extend beyond the date fixed for redelivery.”
As Bingham LJ explained in The Peonia [1991] 1 Lloyd's Rep 100 at 107–108, to meet the various factual situations that can arise in this type of case, the law draws a distinction between a “legitimate last voyage” and an “illegitimate last voyage”. In the former case, the charterer gives orders for the employment of the vessel which can reasonably be expected to be performed by the time for redelivery (though The Peonia established that the charterer is nevertheless liable in damages if the vessel is not redelivered within the contractual period). In the case of an “illegitimate last voyage”:
“…the charterer gives orders for the employment of the vessel which cannot reasonably be expected to be performed by the final terminal date [that is, the date by which the charterer is contractually obliged to redeliver the vessel]. He is therefore seeking to avail himself of the services of the vessel at a time when the owner had never agreed to render such services. It is accordingly an order which the charterer is not entitled to give … 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 never agreed to do so. Alternatively, he may comply with the order although not bound to do so: if he does comply, he is entitled to payment of hire at the charterparty rate until redelivery of the vessel and (provided he does not waive the charterer's breach) to damages (being the difference between the charter rate and the market rate if the market rate is higher than the charter rate) for the period between the final terminal date and redelivery. In the further alternative, if (which we do not decide) the charterer's breach is repudiatory, the owner may accept the repudiation, treat the charter as at an end and claim damages. … the charterer's order is illegitimate because he was not contractually entitled to give it, and the voyage (whether performed or not) is stigmatised as illegitimate because it is one the charterer could not under the charter-party lawfully require the owner to perform.”
Final voyage orders are said to be “illegitimate” therefore if, at the start of the last voyage, it cannot reasonably be expected that they will allow redelivery before the end of the maximum charter period. As appears from the above passage from Bingham LJ's judgment, though a breach of contract, the breach is not necessarily repudiatory (the learned editors of Time Charters, 6 th edn, para 4.49, describe the obligation to redeliver the ship no later than the end of the charter period as an...
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