“Last Voyages” . . . under Time Charterparties (An appraisal of the House of Lords decision in the “GREGOS”)

Competing interests in time charters always create tension between the Owners on the one hand with an obligation to render the services within the ambit of the charterparty, and the Charterers on the other hand and their wish to optimize the use of the vessel. Nowhere is this more so vis-à-vis the Charterers’ last voyage instructions.

Not surprisingly, Charterers throughout the world must have followed the case of the GREGOS trepidatiously as they assessed the parties’ case through arbitration, then the courts and finally culminating in the House of Lord decision.

But first let see what the law says about damages for late delivery. If the vessel is redelivered late by the Charterers they will be liable to the Owners for damages at the current market rate in a rising market for the overrun period. However, if the market has fallen in the meantime the Charterers will have to pay the contractual charter rate for the period overrun, absent specific provisions to the contrary in the charterparty. [1]

Take for examples, the period may be expressed as: “minimum 9 months/maximum 12 months, exact period in Charterers’ option”. Or perhaps “24 months, with Charterers’ option for a further period of 12 months, 30 days more or less in Charterers’ option on final declared period”. The point here is that, “30 days more or less” is in shipping parlance known as the “tolerance” or “margin”. The follow-on clause is usually worded as, “Charterers to declare final period not later than 3 months before the end of the first period”. The first period being the 24 months, the next 12 months being the optional period. It is within this tolerance (30 days more or less) that the vessel must be redelivered back to the Owners to avoid being in breach.

As the end of the charter period approaches the Charterers are mindful that the final voyage did not exceed the last permissible date for redelivery. An overrun may imperil the Owners’ follow-on fixture, or missing the delivery date for the sale of the vessel, or other commitments such as drydocking repairs to maintain the vessel’s “Class” in accordance with the vessel’s Classification Societies rules.

In “Shipping Corp of India Ltd v. NSB Schiffahrtsgesellschaft mbH & Co”, the mv “Black Falcon” [2] was fixed on a time charter for “9 option 3 option 3 months”. ?The vessel was redelivered late on her final voyage. The Owners claimed the difference between the market rate and the charter party rate for the period of the overrun.

In the Queen’s Bench Division (Commercial Court), Mr Justice Steyn (as he then was) considered the Owners’ “expectation interest” in awarding compensation to the Owners ie. He held that the Charterers were liable to pay the charter rate up to the last permissible date for redelivery, and thereafter a higher market rate until the vessel was actually redelivered.

See also the Democritos,[3] where the order given ahead of time was reasonable and valid but when the vessel was sent on the voyage it became evident that she could not complete the voyage in time before the last permissible date for redelivery. The original order whilst valid had become invalid. The overrun period exceeded by 35 days. The Charterers were subsequently ordered to pay the higher market rate of hire which had since doubled the original rate, for the exceeded period.

Background Facts (of The GREGOS)

For the GREGOS, it was a bulkcarrier fixed on a time charter on the familiar NYPE form of charter for minimum 50 days/maximum 70 days which called for redelivery to the Owners not later than 18 March 1988 (with no further tolerance or margin) at one safe port Gibraltar/Hamburg range. Following discharge of the so-called final cargo of Bauxite at Matanzas, Venezuela, the Charterers gave a further voyage order on 9 February to load a cargo of iron ore at nearby up-river Palua on the Orinoco River for discharge at Fos in Italy, with the expectation that after Fos the vessel would make its way in ballast to Gibraltar/Hamburg range for redelivery. By all estimates in the ordinary course of events when this further voyage order was given, the Charterers would in all reasonableness have been able to return the vessel to the Owners prior to the end of the charter period by 18 March. However, as circumstances would have it, on 25 February, the date when this iron ore was supposed to be loaded, the channel was blocked due to the grounding of the Philippine Roxas in the Orinoco River, obstructing movement and navigation in the channel. Vessels lying in wait for loading or discharging were delayed. If the Gregos had followed the orders as given, the vessel would inevitably be redelivered late.

At first the Owners refused to carry out the Charterers’ order and requested the Charterers give a fresh new valid voyage instructions which would bring the vessel’s redelivery date within the stipulated expiration date 18 March 1988. As none was however given at all, it placed the Charterers in possible anticipatory breach of the charter.

To resolve the impasse the parties entered into a “without-prejudice to the Owners’ rights” agreement on 29 February. Following this agreement, the Owners loaded the cargo and completed the voyage. The redelivery was 8 days later than the 70 days originally agreed.

Queen’s Bench Division (Comm Court): [4]

By the time the case reached the Commercial Court, the case had gone through arbitration.

At arbitration it was put to the Sole Arbitrator [5] :

1.??Whether the legitimacy (validity) of the last voyage order was to be established at the date the order was given, or at or immediately prior to the outset of the final voyage.

2.??Whether an illegitimate voyage order was considered repudiatory and entitling the Owners to bring the charter to an end.

The Owners had contended that the Charterers failure to give a legitimate order (pursuant to the employment clause) [6] rendered them in repudiatory breach and the Owners were untitled to withdraw the vessel.

The Arbitrator’s reasoning found favour with the Commercial Court in that the validity of the last order was to be tested when the performance (of that order) fell due. The Charterers had contended, amongst other things, that where the overrun was commercially insignificant, the order was not repudiatory. That argument was rejected.

The Charterers appealed.

The Court of Appeal : [7]

The Court of Appeal held that for the final order to be considered contractually legitimate the Charterers must give the orders for the employment of the vessel which could reasonably be expected to be performed and completed by the end of the charter period ie the last permissible date before the charter expiry. If so, the order is legitimate.

The appeal was allowed and the matter was remitted to the Arbitrator for reconsideration.

The owners appealed.

The House of Lords: [8]

This was an appeal by the Owners Arni Maritime.

The main speech was given by Lord Mustill in which he said:

?“If it can be seen at this early stage that compliance will involve a service which lies outside the shipowner’s undertaking the latter can say so at once, and reject the order. But if the order is apparently valid its validity is no more than contingent, since the time for matching the service against the promise to serve does not arrive until the nature of the service is definitively known. . .

If circumstances change, so that compliance with the order will call for a service which in the original contract the shipowner never undertook, the obligation to comply must fall away. . . As I see it, the charterers’ order in advance amounts to a continuing requirement, the validity of which may change with the passage of time ...

. . . But it is plain from the facts stated by the arbitrator that the charterers had no intention of doing this, and that the critical time would pass without any valid orders being given. This is the significance of the changed circumstances which rendered the original order invalid. Not that the order constituted a repudiation in itself, but that the charterers’ persistence in it after it had become invalid showed that they did not intend to perform their obligations under the charter. That is to say, they ‘evinced an intention no longer to be bound’ by the charter. This was an anticipatory breach, which entitled the owners to treat the contract as ended ...” [9]

?The last voyage order may be validly given, unfortunately unforeseen circumstances and future supervening events cannot accurately be predicted, by the time performance fell due, it may be evident that the vessel may not be redelivered in time. Thus, it became illegitimate. And a new valid order needed to be given afresh to comply with the charter.

Essentially, the assessment of the last voyage instructions will be carried out, not at the time the instructions were given, but on the date following the completion of discharge (of the current cargo) and the vessel was about ready to carry out that last voyage instructions.

The Last Word on the Last Voyage

The underlying principle seems to be that the giving of an invalid order is not repudiatory in itself, but if the Charterers insisted on its performance after it has become invalid . . . and in the words of Lord Mustill, it “evinced an intention no longer to be bound by the charter” and that constitutes an anticipatory breach which entitles the Owners to bring the charter to an end.

His Lordship when on to say even if the Charterers had given an order which would not in the circumstances enable the vessel to be redelivered within the charter period, what loss had the Owners suffered. Perhaps the Owners might even make a profit being free at the right place at the right time to pick up a spot cargo (charter) on a rising market. If that was so, would the Owners ordinarily recover any damages for the wrongful repudiation, he asked.

The House of Lords allowed the Owners’ appeal and the Arbitrator’s award was restored.

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[1] See "Conventional measure of damages for late redelivery", Carver On Charterparties, (2nd Ed, 2021) at 12-283 (page 1484)

?[2] Shipping Corporation of India Ltd?v. NSB?Niederelbe Schiffahrtsgesellschaft mbH & co (The “BLACK FALCON”) [1991] 1 Lloyd's Rep. 77 Queen’s Bench Division (Comm Court) Before Mr. Justice Steyn

?[3] Marbienes Compania Naviera SA v. Ferrostaal AG (The Democritos) [1976] 2 Lloyd’s Rep. 149 (C.A.)?

[4] Torvald Klaveness A/S v Arni Maritime Corporation (The “Gregos”) [1992] 2 Lloyd’s Rep 40.

?[5] Mr Mark Hamsher (LMAA)

?[6] The employment clause of NYPE form provides that "The Charterers shall furnish the Captain from time to time with all requisite instructions and sailing directions in writing..." Clause 8 further provides, inter alia. that, "... the Captain (although appointed by the Owners) shall be under the orders and directions of the Charterers as regards employment and agency...."

?[7] [1993] 2 Lloyd's Rep. 335

?[8] Torvald Klaveness A/S v. Arni Maritime Corporation (The “GREGOS”) [1995] 1 Lloyd's Rep. 1

Torvald Klaveness A/S v. Arni Maritime Corp, The GREGOS [1994] 1 WLR 1465, HL

HOUSE OF LORDS: Before Lord Templeman, Lord Ackner, Lord Mustill, Lord Slynn of Hadley, and Lord Woolf.

[9] See "Cases and Materials on The Carriage of Goods by Sea" (4th Ed, 2016) at p.229.

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