Claims Letter – Time charters duration of the C/P period

Time charters duration of the C/P period

In respect of a Time Charter the duration and accordingly the payment of hire are essential. In this context Time Charters can be divided in Period Charters and Trip Charters. A combination of both is also possible.

Each Time C/P will specify the date of delivery, which is the beginning of the C/P period. The charterer must redeliver the vessel when the specified C/P period has come to an end, not earlier and not later. Otherwise charterers are in breach of the C/P.

As it is difficult to predict how long one or more voyage(s) will take, charterers need to build in some flexibility with regard to the C/P period and agree upon a margin.
For example this can be achieved as follows:
• About 4 months
• 4 months 15 days more or less
(in charterers’option)
• Minimum 3 months maximum
5 months
• About 4 months to a maximum of
5 months
• About 4 months without guarantee

Alternatively under a Trip C/P the voyage will be indicative for the C/P duration. The voyage has been defined and the C/P period will last as long as this voyage will take. A combination of a Period C/P and Trip C/P will for example specify the voyage and the period within which the voyage has to performed. Also here charterers will need a degree of tolerance with regard to the C/P period as illustrated here above.

Period Charters

In case the C/P does not allow for an express margin of the C/P period (see above) a reasonable tolerance will be implied because it is not possible to calculate the exact date on which the vessel will be redelivered.

What is “reasonable” will depend on the circumstances of the case and in particular the length of the C/P period. For example it was held that in relation to a C/P of 6 months and 20 days a margin of 8,4 days should be allowed. The same applied to a margin of 11 days in relation to a C/P of 30 months.

“About”

For example in the New York Produce Exchange 1946 form the T/C period has been qualified by “about”. The effect is the same as the margin which might be implied if the C/P does not provide for an express margin. (See the previous paragraphs here above.)

As a guideline, a margin of 5 days was allowed in respect of a C/P period of “about 4 to 6 months” and in respect of a C/P period of “about 6 months”, 12 days beyond the C/P period was held to be not an acceptable tolerance.

“Without guarantee”

If the C/P period has been qualified as such, the obligation on the charterer is restricted to provide an estimate of the duration of the C/P period in good faith. So, what charterers genuinely believe to be correct at the time of fixing. Charterers will still be in breach of the C/P if they knowingly provided wrong information.

Early redelivery

If charterers redeliver the vessel prior to the earliest allowed date, the charterers are in breach of the C/P and liable for damages. An early redelivery will be treated as a repudiatory breach of the C/P as a consequence of which the owners may choose to terminate the C/P.

The measure of damages will usually be the difference between the C/P hire-rate and the market-rate from the date of termination until the earliest date the charterers could have redelivered the vessel. This means that there must be an available market for substitute employment on basis of C/P terms comparable with the original C/P. (Regardless of whether owners will actually fix the vessel on similar terms.)

If there is no available market the owners are entitled to claim damages which should put them in the same position as if the vessel had not been redelivered early.

Late redelivery / legitimate voyage orders

Charterers have an obligation to give such (final) voyage orders which will allow the vessel to be redelivered at the end of the C/P period. So the end of the (final) voyage should coincide with the end of the C/P period, taking into account any express or implied margin.

If charterers give instructions for a voyage which cannot reasonably be expected to be completed by the end of the C/P period, this could be a breach of the C/P and the owners may ask for fresh and valid orders. Owners may do so till the commencement of this voyage.

In case charterers do not give a new order which is legitimate, this is a repudiatory breach of the C/P and owners may choose to terminate the C/P. Therefore an illegitimate order is not a repudiatory breach of the C/P. This will only be the case if charterers fail to replace it with a valid order after the owners have asked for it.

Damages

Irrespective of whether the voyage order is legitimate or not the owners will be entitled to claim damages if the vessel is redelivered beyond the end of the contractual C/P period.

Furthermore, owners’ compliance with an order which is illegitimate does not mean that owners have waived their right to claim damages as a consequence of the illegitimate order.

If owners have terminated the C/P because charterers did not give a valid order after owners asked to replace an illegitimate order, owners will be entitled to claim damages as a consequence of charterers’ repudiatory breach of the C/P.

Calculation of damages

If the vessel is redelivered after the end of the C/P period the following damages can be claimed:
• Difference between the C/P hire-rate and the relevant market-rate for the period of the overlap.
• Losses suffered under the next fixture a consequence of the late redelivery.

With regard to the first kind of damage, the overlap runs from the latest date the vessel could have been lawfully redelivered until she actually was redelivered.

Further, if there is no market, owners should be put in the same financial position as if there was no breach of the C/P.

With regard to the second kind of damage, although the House of Lords held in 2008 that a loss of about Usd. 1.4 million (which the owners claimed to have suffered under a next fixture as a consequence of a late redelivery) could not be recovered from charterers (The Achilleas), it cannot be said that in each case damages will be limited to the first kind of damage as mentioned here above.

Under different circumstances, f.e. whereby charterers are well aware of the consequences which a late redelivery will have for owners with regard to the next fixture, a Tribunal or Court may reach a different conclusion.

Imaginable, charterers may have assumed the risk of the cancellation of a follow-up fixture as a consequence of a late redelivery if f.e. they are made fully aware of this risk at the time of fixing or at the time they insist on the compliance of an illegitimate (final) voyage-order.

Off-Hire Periods

If a vessel has been off-hire during the C/P period, the off-hire period will not be added to the C/P period, unless the parties have expressly agreed on this.

Considerations

In order to avoid disputes concerning early redelivery, illegitimate orders, late redelivery and consequential claims for damages, it follows from the above that charterers can protect their position if they take the following into account when they negotiate a fixture:

• The C/P period should be variable. Sufficient margin should be applied. In particular the qualification “Without guarantee” may avoid unpleasant surprises when the date of redelivery will be subject to changes which could not have been foreseen.
• Charterers may try to agree upon a “last voyage” clause into the C/P. Some standard C/P’s already contain such a clause of which the scope can be twofold:

1) Or it allows charterers to complete the final voyage which overruns the C/P period, provided that the voyage order was legitimate.
2) Or it allows charterers to give orders for a last voyage which would otherwise have been illegitimate for causing a late redelivery.

Clauses of the first kind are more in use. Clauses of the second kind give charterers wide liberties and therefore difficult to accept for owners. Very clear wording will be required to turn an illegitimate order into a legitimate order.
Examples of Clauses which fall in category 1) can be found in f.e. the Baltime form and the Shelltime 4 form. The relevant wording of the Baltime clause 7 reads as follows:

“Should the vessel be ordered on a voyage by which the C/P period will be exceeded the Charterers shall have the use of the vessel to enable them to complete the voyage, provided it could be reasonably calculated that the voyage would allow redelivery about the time fixed for the termination of the Charter, but for any time exceeding the termination date the Charterers shall pay the market-rate if higher than the rate stipulated herein.”

Simplified and somewhat more charterers’ friendly such a “final voyage clause” could read:

“Should the vessel be ordered on a (final) voyage which may reasonably be expected to result in redelivery by the final terminal date but if nevertheless the C/P period will be exceeded charterers shall have the use of the vessel to enable them to complete this voyage against payment of the hire-rate stated in this C/P.”

Other related issues such as delivery and redelivery of the vessel will be discussed in a subsequent service-letter.

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