Redelivery under time charters


  • Date: 14/02/2001
  • Author: John D Kimball
  • Source: Healy & Baillie, LLP

1. WHAT IS REDELIVERY?

In the context of a time charter, re-delivery is the termination of Charterer's right to use the vessel and takes place at that moment when the charter comes to an end. There is no physical return of the vessel to the Owner, who has been actually operating the vessel throughout the charter, but under Charterer's orders.

2. WHERE DOES REDELIVERY HAVE TO TAKE PLACE?

The obligation of the Charterer is to redeliver at the place specified in the charter. Redelivery at any other place will be considered a breach of the contract which may entitle the Owner to damages. In some charters, the parties are very specific as to the place of redelivery. In others, the parties merely agree to redelivery at any place within a geographical range. The Exxon Mobil 2000 form, e.g., provides in Clause 19 for redelivery "at a port or place worldwide, in Charterer's option." While the ExxonMobil form is highly favorable to Charterer on this point, it nevertheless offers the significant advantage of absolute clarity. Indeed, most disputes concerning this issue will be avoided if the parties are specific in describing the point of redelivery. Charterer usually wants as many options and as much flexibility as possible in the time charter and that is what may lead to disputes.

 

3. CONDITION OF THE SHIP UPON REDELIVERY

Few of the tanker time charters contain provisions regarding the condition of the ship upon redelivery. This is in contrast to many other charter forms, such as the New York Produce Exchange form, which requires that the vessel be redelivered in "like good order and condition, ordinary wear and tear excepted." The ExxonMobil 2000, Shelltime 4, Texacotime and the STB Time forms do not contain clauses comparable to the NYPE form. On the contrary, the tanker forms generally obligate the Owner to maintain the condition of the vessel throughout the entire charter period. See e.g., ExxonMobil Clause 4. Repair expenses are for the Owner's account whether or not they constitute ordinary wear and tear. In this context, however, a Charterer would be liable for physical damage caused by a breach of its usually rather curtailed safe port or berth obligations or as a result of bad bunkers or cargo which did not conform to the charter requirements.

Most tanker forms contain clauses that require the ship to be free of cargo upon redelivery. ExxonMobil 2000, Texacotime and STB Time, for example, provide that Charterer can choose whether to redeliver the vessel with tanks that are in either a dirty or a clean condition (STB Time Clause 19, Texacotime Clause 31).

The Shelltime 4 form, by contrast, has no such provision. That form, however, contains an "injurious cargoes" clause (Clause 28) restricting the kind of cargo the vessel may transport. The Charter furthermore provides that repair of damage to the vessel caused by transportation of such "injurious" cargo is the responsibility of the Charterer. Thus, under this clause the Charterer is obliged to redeliver the vessel without any damage caused by the carriage of "injurious" cargo.

 

4. WHEN DOES REDELIVERY HAVE TO TAKE PLACE?

There is a wide array of clauses providing for when redelivery is to take place. These include clauses which provide for a fixed or "flat period," such as "one year," or which name a date certain, such as "October 31, 2000." Alternatively, there are clauses which provide for "minimum/maximum" periods. There also are clauses which qualify a "flat period" or specific date by using the word "about".

 

a) Flat Periods

Assume a charter for a fixed period of "one year." When it comes time to decide what that means and whether a final voyage is permitted, there are three possibilities: redelivery on the exact day required, redelivery early, or, finally, redelivery late. Obviously, if redelivery is made on the exact date required, there should be no problem. But that rarely occurs. In deciding whether to redeliver early or late, the basic rule is that the Charterer may send the vessel on the shortest commercially practicable voyage possible, even if that will result in a late redelivery, provided that the anticipated overlap will be shorter than the underlap which would result if the voyage was not made. An early redelivery is a breach if a final voyage could have been made with an expected overlap shorter than the period of underlap. The determination of whether a final voyage is required (unless Charterer chooses to keep the vessel idle and pay hire until the end of the "flat period") is to be made as of the time the voyage

would begin.

 

b) Minimum/Maximum Time Periods

Charter parties sometimes state the duration of the contract as being for a minimum or maximum period. A typical clause reads "minimum 11 months/maximum 13 months." When that is the case, redelivery is timely at any time between the two margins. In these circumstances, courts and arbitration tribunals have held that no overlap or underlap will be allowed.

 

c) Express Margins

When the charter party uses express margins for redelivery, the result will be the same as when minimum and maximum time periods are used. A typical example is "one year, 30 days more or less." No overlap or underlap is allowed, and the express margins will govern.

 

d) "About"

The inclusion of the word "about" in describing the period of the charter clearly indicates an intention to allow flexibility with respect to the time of redelivery. It does not require complex legal analysis to understand that when the parties say a charter is for "about one year," they do not mean that the charter must end in exactly one year. As the Second Circuit put it, the use of the word "about" means a "reasonable leeway" was intended.

So what degree of leeway does the word "about" allow? The answer depends on the overall duration of the charter and any special facts that reflect the intent of the parties. It is essentially a matter of what is subjectively reasonable.

For example, if a voyage terminates in a port of redelivery before the end of the stated term, Charterer may require the vessel to take another "reasonable" voyage even though it is certain to overlap the stated term. If, however, the time remaining before the end of the stated term is so short as to render another voyage "unreasonable," then the vessel may be surrendered by the Charterer, or withdrawn by the owner, thus creating an underlap.

Some tanker forms make provision for a "final voyage" to take place and define when that can be done. In these charters, principles of overlap and underlap do not apply as such and the subjective test of whether it would be reasonable for Charterer to make one last voyage is replaced by a more objective test of whether the vessel is actually performing a voyage when the charter would otherwise end. Some forms take a different approach and use the word "about" to describe the charter period.

 

i) ExxonMobil 2000

Clause 1(a) defines the term of the charter as a "Firm Period." This wording is intended to distinguish the initial period from any later optional periods or off-hire extensions. In reality, the "Firm Period" is not so "firm" because it is prefaced by "about" and this is defined as up to 45 days more or less, at Charterer's option. Thus, for a firm period of about 1 year, a redelivery up to 45 days early or late is allowed.

ii) Shelltime 4

The printed Shelltime 4 form takes an approach different from ExxonMobil 2000. The printed Shelltime 4 does not use "about" and instead seems to encourage providing for a flat period in Clause 4. Clause 19 then expressly provides for a "final voyage." Clause 19 deserves careful reading. It is different from its predecessor, which was Clause 18 in the now abandoned Shelltime 3 form.

Clause 19 of Shelltime 4 does not use the "notwithstanding" language of the old form. Instead, it uses the very different wording "if at the time this Charter would otherwise terminate in accordance with Clause 4" the vessel is on a voyage.

The words "If at the time..." are clearly a break from the "notwithstanding" language of old Clause 18. This suggests that Shell intended Clause 19 to read as an integrated provision alongside Clause 4, rather than as language which overrides Clause 4.

The wording "at the time the charter would otherwise terminate in accordance with Clause 4" is not self-defining. If the parties actually agree to a flat period, the termination date will be subject to basic principles of underlap and overlap and therefore quite flexible. What seems to be intended is the end date of the flat period, but that is open to question.

Clause 19 provides that if at the termination time the vessel is on a ballast voyage to a port of redelivery, the charter will continue only until that port is reached.

If, on the other hand, the ship is performing a laden voyage, then Charterer is required to keep the ship, complete the laden voyage and then return to a port of redelivery.

The use of the word "shall" is significant, since that word makes the provision mandatory.

The clause can allow wide ranges in the redelivery time. Suppose the vessel finishes discharging at a time and place such that applying the rules of underlap and overlap discussed earlier, the Charterer would be required to redeliver early. Does Clause 19 change that result? Clause 19 certainly does not mandate a redelivery at a fixed time or preclude an early or late redelivery.

Suppose the market is at an all-time high, far above the charter rate, and the vessel finishes discharging at Loop. The very careful operations manager for Charterer calculates that if all goes well, the ship can return to Saudi Arabia, load and then commence a new laden voyage just one day before the termination date. The Charterer knows there will be a sizeable overlap. Is that allowed?

Clause 19 arguably means: "Yes. It is allowed." The vessel is on a laden voyage at the time the charter is to terminate and, as a result, Charterer arguably is not only allowed, but is required by Clause 19 to complete the laden voyage and only then return to a redelivery port. The contrary view, of course, is that Charterer should not be permitted to create what may be a long overlap if it had no expectation of redelivery within the basic charter period when the last voyage orders were given.

 

iii) Texacotime 2

The main problem with the final voyage clause (Clause 11) of this form is to define the words "should the vessel be upon a voyage at the expiry of the period of this charter." Does that language encompass a ballast voyage? Or is it modified by the reference later in the clause to a "round voyage?"

 

e) Delays Arising from Causes for Which Owner Is Responsible

It can happen on occasion that a vessel will encounter delays in performing on account of causes for which Owner is responsible. The question that arises is, if that happens, should the period of the charter be extended for a corresponding amount of time?

Let us imagine an extreme example. The ship is on a one-year time charter with a month to go. As a result of improper maintenance, the engine breaks down and repairs are needed which take up to 30 days. Is the charter then extended for 30 days to make up for the lost time?

The answer has to be qualified. Ordinary breakdowns do put a ship off hire, but there is no automatic extension of the charter as a result. Certainly, if the vessel was laden with cargo at the time, the period of the charter would be extended to give Charterer sufficient time to deliver the cargo and make a proper redelivery.

 

f) Agreed Extensions

The parties often clarify the situation by including a provision which extends the period of the charter for the time the vessel was off hire. ExxonMobil 2000 is one example. Clause 1(c) gives the Charterer an option to extend the off-hire period.

 

g) Local Time vs. Universal Time

A majority of New York arbitrators have long followed the rule that the elapsed time under a charter is based on local time at the delivery and redelivery ports respectively. There is no uniformity on this rule in the printed tanker charter forms. Shelltime 4 incorporates the local time approach. ExxonMobil 2000 appears to be silent on the point, although there is one reference to local time in a clause on laydays. Texacotime requires the use of Coordinated Universal Time. (Cl. 4).

 

5. DAMAGES

When deciding on damages, courts and arbitration panels take a very case-based approach. The basic rule is that the non-breaching party is to be put in the same position, insofar as money can do so, as it would have been in had the charter been performed according to its terms.

The standard approach in an underlap case is that hire is awarded up to the earliest time redelivery is permitted under the charter. In the case of overlap, Owner will be awarded damages based upon the charter hire for the period of the charter (including implied or express margins), but will get damages based on the market rate for any additional time. Lost profits for business which could not be carried out because of a late redelivery may possibly be recoverable if the Charterer was put on notice of Owner's possible employment.

If the Charterer's liability is incurred as a result of insufficient cleaning, Owner is entitled to the actual costs of cleaning, plus hire for the time the operation takes. If, on the other hand, the breach consists of redelivery of a ship with structural damage, the measurement of damages will be related to the diminution of the value of the ship or the cost of repairing the defective condition.

The Owner, however, normally cannot elect to treat the failure to redeliver in like good order as an overlap issue and claim hire for the period it would take to put the ship back to "like good order". The Owner cannot refuse to accept redelivery " unless the damage is such as to make the vessel unseaworthy and thereby deprive the Owner of the immediate use of his ship." The Cris, SMA 199 (New York 1958).

John D Kimball. Partner, Healy & Baillie, LLP. This article is condensed from a paper delivered at the BIMCO Seminar on Time Charters, held at New York, October 31, 2000.

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