Voyage Charterparty
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Renunciation and Rescission
The charterers under a strict obligation to pay freight to the owners under a voyage charter. This obligation is not qualified by such external factors as financial difficulties, drop in freight rates, market conditions, etc. In such cases there is no doubt that the charterers are liable.
English law on renunciation is well settled. In Universal Cargo Carriers Corpn v Citati [1957] 2 All ER 70, [1957] 2 QB 401, [1957] 2 WLR 713, affd CA, [1957] 3 All ER 234, [1958] 2 QB 254, Devlin J. defined several main principles:
Since a man must be both ready and willing to perform, a profession by words or conduct of inability is by itself enough to constitute renunciation. But unwillingness and inability are often difficult to disentangle, and it is rarely necessary to make the attempt. Inability often lies at the root of unwillingness to perform. Willingness in this context does not mean cheerfulness; it means simply an intent to perform. To say "I would like to but I cannot" negatives intent just as much as "I will not".
…If a man says "I cannot perform", he renounces his contract by that statement, and the cause of the inability is immaterial.
It is also well settled that the party in breach is under a secondary obligation to pay damages related both to breaches committed before rescission and to losses suffered as a result of the defaulting party’s repudiation of future obligations.
In Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd [2010] EWHC 903 (Comm) the High Court has been invited to decide the issue of an awkward renunciation of Consecutive Voyage Charterparty (CVC) by the charterers.
The owners let their capesize bulk carrier the Kildare to the charterers under (CVC) dated 5 December 2007. In November 2008, when there was 4 and a half years remaining for CVC to run, the charterers, on the plea of financial crisis and changed market conditions, proposed to the owner reduction in the Charterparty freight rate (from US$16 pmt to US$6 pmt) and together with its extension from 5 to 10 years. The owners in their reply called such proposals as "totally unacceptable" and that there are no ‘permissible excuse for failing to perform a contractual obligation under English law". In subsequent correspondence the charterers approached the owners advising that they exercised suspension of all of its long term contracts. In their respond the owners requested the length of suspension period and the precise cause for the suspension, which request has never been replied.
Meanwhile the vessel completed her sixth consecutive voyage and arrived at loading port and tendered NOR. The charterers failed to load any cargo at loading port within the laytime or at all. The vessel went on demurrage at 07:22 (UTC) on 1 January 2009 and remained on demurrage thereafter. On 9 January 2009, the owners accepted the charterers’ communications and conduct as a repudiation of the charterparty thereby terminating it with effect from 9 January 2009. The owners’ claim for demurrage was of US$749,137.50 (to which there was now no defence) and damages of up to US$105 million.
Before Steel J the charterers contended i) that there was no repudiation or ii) the quantum of the owners’ damages claim is substantially overstated. The learned judge on the basis of very contradicting evidence concluded that fair and objective reading of the entirety of the exchanges between the parties was only consistent with the charterers evincing a clear intention not to be bound by the charterparty.
The learned Judge derived support for his from the following facts:
a)The email expressed in the form of a call for a doubling of the period of the charterparty together with a 75% reduction in hire failing which there was no "other way forward".
b) In telephone conversation the charterers made it plain that their financial position rendered it necessary to terminate the contract and that they would not be performing any future obligations under the contract.
c) the charterers claimed a purported right to suspend or delay performance, yet at no stage indicated on what basis there was any such right.
d) The charterers’ reply on persistent requests by the owners for confirmation as to whether the charterers would or would not perform the contract says that the charterers took a view that they entitled only to "endeavour" to comply with its contractual obligations "in the event that circumstances changed".
e) The charterers claimed to be "investigating" whether the contracts were frustrated but otherwise did not reply to any messages from the owners and did not give any instructions for loading for the seventh voyage.
On the quantum issue there were several questions to decide and most notable among them was the question whether there was ‘an available market on which the vessel could have been fixed until May 2013 on or shortly after 9 January 2009, alternatively on or shortly before 26 June 2009, alternatively at some later date and, if so, what was then the market rate for a fixture on the same or similar terms (save as to rate) as the charterparty?’
This question was answered by the court in negative. The judge based his conclusion on expert evidence and analysis that for there to be a market for 4 and a half years business there needs to be fixing activity for five-year business, not only physical possibility for the owners to fix vessel for 4 and a half years. Therefore, if on the one hand risk was too high for the charterers and on another rates too low for the owners, to want to make that commitment for that particular period of fixture then there is no ‘available market’. Steel J said:
The market rate had been at record levels (US$160,000 per day) as recently as August 2008. A rate of US$24,000 or so following the collapse might have been acceptable in the short term (say up to 1 or even 2 years), but for any longer period a far higher rate would be demanded. Yet any such higher rate would not have attracted any charterers: indeed they would have pressed for a lower rate.
The judge, moreover, found that acceptance of the market rate at the date of breach is deemed to constitute reasonable mitigation, he stated that:
It is simply a matter of chance when the vessel completes any spot voyages after the termination date. Indeed they may overrun the emergence of an available market. In short I see no basis for requiring the owner to go back into the term market at the end of every spot voyage or for that matter to disregard short time charters in case the market for longer charters emerges in the meantime.
This decision confirms that there is no half way when one party to contract stops to perform its contractual obligations in a whole or in its substantial part on pretention of suspension due to temporarily financial difficulties. English law insists on strict liability, which does not usually require prove of fault on the part of the wrongdoer. Once an injured party elects to rescind the contract, the contract is determined and the party in fault is liable in damages.
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