Time Charters. Condition of Vessel on Redelivery Last updated 29-Aug-2014

It would seem to me … that every time charter must have a final terminal date, that is a date by which (in the absence of an exonerating cause) the charterer is contractually obliged to redeliver the vessel. Where the law implies a margin or tolerance beyond an expiry date stipulated in the charter-party, the final terminal date comes at the end of such implied extension. When the parties have agreed in the charter-party on the margin or tolerance to be allowed, the final terminal date comes at the end of such agreed period.
Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia), [1991] 1 Lloyd’s Rep 100, per Bingham LJ at p.108.

Time charter necessarily contains terms as to its duration.

Since charterers have no possessory right over the vessel, it is for the owners to maintain the vessel throughout duration of the charter. Accordingly the charterers would not be liable for any ordinary wear and tear or defects that the owners had a duty to repair.

On the other hand some standard time charter forms usually provide that the vessel to be redelivered on the expiration of the charter in the same good order as when delivered to the charterers. See clause 7 of Baltime 1939 below:

BALTIME CL 7 REDELIVERY

… and clause 10 of NYPE:

NYPE CL10 RATE OF HIRE REDELIVERY

Extent and validity of such duty is rather difficult to assess, because all of a sudden at the end of charter period time charterers accrue liability which was the owners’ burden all the way through this period of time as a part of their duty to keep the ship in good order and condition during time charter. It is suggested therefore that under this type of clause the charterers incurs no liability as regards defects in the condition of the ship on redelivery unless those defects have arisen from their contractual default or resulted from last employment orders given by the charterers. This latter qualification related to charterers’ duty to redeliver vessel fully discharged and free of previous cargoes.

Duration of contractual service of the vessel under time charter confined between the terms of the place or time, or both, at which the vessel is redelivered, regardless of vessel’s condition. The owner cannot refuse to accept redelivery of damaged during charter period and not-repaired vessel. In Wye SS Co v Compagnie Paris-Orleans [1922] 1 KB 617, the ship was to be redelivered ‘in same good order as when delivered’, but she was tendered for redelivery in damaged state. It was held that the charterparty involved two obligations on the charterers; (a) to redeliver, and (b) to redeliver in good order; and as the ship was tendered for redelivery at the proper time, no hire was payable in respect of the time subsequent to the tender during which repairs were being executed, but damages only, for detention and cost of repairs, were payable.

In The Puerto Buitrago [1976] 1 Lloyd’s Rep. 250 cl.15, Condition of Redelivery, provided that:

The vessel shall be redelivered to the Owner in the same good order and condition as on delivery, having been maintained in accordance with Clause 10A, ordinary wear and tear excepted and in class without recommendations. At the redelivery survey, surveyors … shall determine and state the repairs or work necessary to place the vessel in the condition and class required in this paragraph. … Charterer before redelivery, shall make all such repairs and do all such work so found to be necessary at its expense and time.

At the end of charter period (until the 28th May, 1975, one month more or less in Charterers’ option) the vessel developed engine trouble and had to be towed from Rio de Janeiro in Brazil to Gdynia in Poland where her cargo of soya bean meal was unloaded. She was then towed to Kiel for repairs, which were estimated at $2 million although the value of the vessel when repaired would only be $1 million. The charterers admitted liability for $400,000 of the repairs and redelivered the vessel on Sept. 22, 1975. The shipowners refused to accept redelivery contending that under the charter-party the charterers were bound to repair the vessel whatever the cost and to pay the charter hire until the vessel was repaired. Mocatta J had given judgment in favour of the shipowners, holding that the charterers were bound to repair the vessel before redelivery.

On appeal the Court of Appeal was to decide whether that stipulation was a condition precedent to his right to redeliver the vessel. The Court held that redelivery was effective, when contracted period was over, notwithstanding the fact the vessel was not in proper repair, because the obligation to repair in cl. 15, was only a stipulation giving a remedy in damages.

Where a charterparty is for a fixed period such as three or six months, the court may imply a reasonable margin or allowance because it is impossible for anyone to calculate exactly the day on which the last voyage may end, but it is open to the parties to provide that there is to be no margin or allowance.

In Bulfracht (Cyprus) Ltd. v Boneset Shipping Company Ltd. (The Pamphilos) [2002] EWHC 2292 (see also Off-hire due to marine growth) arbitrators, with whom the judge agreed, declined the owners claim under the second head that the charterers were in breach of their obligation to redeliver the vessel in like good order and condition, because of the fouling of the hull, which took place as a result of their following Charterers’ orders, namely 24 days of vessel stay at anchor off Sepetiba, Brasil. The tribunal held that burden of proof of breach lay on the owners who had to establish at least a prima facie case that the barnacles had grown during the charter service and that their growth fell outside ‘ordinary wear and tear’ exception. Although it was accepted that the barnacles had grown during the charter period, but such occurrence fell short of an extraordinary event, and was therefore an ‘occupational hazard’ which was within the redelivery proviso: ‘in like good order and condition, ordinary wear and tear excepted’.

When on redelivery the vessel is under detention by port authorities it will not be an obstacle for the charterers. In Ullises Shipping Corp v FAL Shipping Co Ltd (The Greek Fighter) [2006] EWHC 1729 (Comm), it was held that phrase ‘in the same good order and condition as when delivered’ relates to the physical order and condition of the vessel, but does not involve the charterers restoring possession to the owners for under the time charter possession rested in the owners throughout.

Question of measure of damages was considered in bareboat charter case Channel Island Ferries Ltd. v Cenargo Navigation Ltd. (The Rozel) [1994] 2 Lloyd’’s Rep. 161. Phillips, J. held that:

If a vessel is damaged or develops a defect it will normally be reasonable to effect repairs to enable the vessel to continue to trade. The value of the vessel will be reduced by an amount that reflects the expenditure that is necessary to effect the repairs …
If the cost of remedying the defect is disproportionate to the impact of the defect on operating costs, it will not make commercial sense to effect the repair …
Where a contract makes specific provision for the condition or attributes of a vessel upon delivery or redelivery to her owners, the owners will not necessarily be able to recover as damages the cost of remedying a failure to comply with the provision. Such cost will only be recoverable if this represents reasonable expenditure, and this will be judged on the basis of the commercial implications of the breach of contract.
… in a commercial context [shipowner] will not recover damages on a "cost of cure" basis if that cost is disproportionate to the financial consequences of the deficiency.

Therefore where a contract makes specific provision for the condition or attributes of a vessel on delivery or redelivery to her owners, the owners will not necessarily be able to recover as damages the cost of remedying a failure to comply with the provision; such cost would only be recoverable if this represented reasonable expenditure and this would be judged on the basis of the commercial implications of the breach of contract.

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