The importance of time in charter parties

The time for performance in contracts is not of the essence unless it is expressly agreed by the parties or implied by the nature of the contract. The implication that time is of the essence will take place where the circumstances of the contract or the nature of the subject matter of contract require that the time of performance is imperative. And in fact in Bunge Corp v Tradax Export SA 1, the House of Lords stated that, in a mercantile contract, when a term has to be performed by one party as a condition precedent to the ability of the other party to perform another term, especially an essential term, the term as to time for the performance of the former obligation will in general fall to be treated as a condition2. A contract where time is of the essence requires performance of the party's obligations strictly in accordance with the dates or timeframes set out in the contract. The question in each case is to determine the particular clause of the contract where time is of the essence.Thus it is possible sometimes to classify some terms of a charterparty as to be condition when they are strictly correlated with time, especially when we have several charteparties concluded in a chain: it is the case of delivery and redelivery of the vessel, the laycan window, and the clause regarding laytime and demurrage. This is because in a charterparty the charterer will seek to maximise the number of profitable adventures that he can engage in during the charter whilst the owner will seek to minimise the time lost between the return of the vessel and its handing over to a new charterer. Inevitably, despite the apparent simplicity of hiring a vessel for a specific period of time, the uncertainty inherent in maritime ventures results in tension between the charterer and ship owner at hand over time. A ship owner can find himself exposed to liability if he is unable to deliver a vessel to a charterer because the previous charter has over run its allocated time, whether that over run / over lap is intentional or not. Where this occurs the owner will,
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[1981] 2 Lloyd 1 (HL) at pp.9 Benjamins.Sale of Goods. Sweet and Maxwell, The Common Law Library, 8th ed. 2010 at para 9-005

if possible, seek to recover any consequent losses from the previous charterer who over-ran his charter, thereby causing the problem. It could be interesting to scan when we can classify these terms as conditions and when on the contrary they cause only a right to claim for damages for the innocent party.

I think it is important to start describing by and large what is a condition: it is a basic term, non performance of which would render performance of the remaining terms something substantially different from what was originally intended. Consequently, the breach of such a term would entitle the party not in default to treat the contract as repudiated and itself as discharged from performance of all outstanding obligation under the contract.3However he can, if he prefers, elect to maintain the contract in existence and content himself with proceeding for damages in respect of this loss. The easiest way to create a condition is for the parties themselves to classify a term as such. Where a trivial breach is intended to be a breach of condition it is important for the parties make their intention clear. It is simple to note that the owner that fails to make their vessel available at the agreed time under a voyage charteparty will realise that, as the result of their breach, the charterer will be unable to ship their cargo as originally intended4. As cited above, in Bunge Corp v Tradax Export SA5, the House of Lords stated that, in a mercantile contract, when a term has to be performed by one party as a condition precedent to the ability of the other party to perform another term, especially an essential term, the term as to time for th performance of the e former obligation will in general fall to be treated as a condition.

3Jhon
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F. Wilson. Carriage of Goods by sea. Pearson Education, 6th ed. 2007 at pg.340 ibid pg. 346 5[1981] 2 Lloyd 1 (HL)

This is the reason because contractual statements related to the delivery of the vessel as statements that the ship is in a certain position at the time of making the charter, or that she will be at a certain place by a certain day, or that she will be ready to receive a ca by a rgo certain day, or that she will sail on her voyage by a certain day, are usually condition of the charter6, but with some clarification.The location can be of great significance to the charterer. It is a direct indicator of the safety of the vessel at the time when it is hired and the ability of the vessel to arrive at the port of loading on time and its ability to fulfill contractual obligations. 7Most charters will contain provisions either as to the vessel's present position, or her expected readiness to load, or both. The new Gencon form, for example, contains boxes entitled "Present Position" and "Expected Ready to Load". Asbatankvoy contains equivalent provisions. The "Present Position" box is, of course, a statement of existing fact and, if that statement is inaccurate, this will generally give rise to breach. Whether it gives rise to a repudiatorybreach, entitling the charterer to terminate, is less clear. Cases in the past have held that misdescriptions of the vessel's current position do amount to a repudiatory breach: thus in Behn v Burness8the position of the ship was held to be a condition. The Charterparty, dated October 19th, stated the ship now at Amsterdam . On October 15th the ship was in

fact 62 miles away and was detained there by weather tilt the 23rd of October. The court held that the position of the ship was an essential fact for the interests of the charterer. But most of these cases are somewhat old, and they were decided at a time when contractual clauses were categorised either as conditions (breach of which gave rise to a right to terminate) or warranties (which, while giving rise to a claim for damages, did not j stify termination). u There was no middle ground. The law now recognises an intermediate "innominate term"

Stewart Boyd CBE, QC; Bernard Eder, QC; Andrew Burrows, QC (Hon); David Foxton, QC; Steven Berry, QC; Christopher Smith. Scrutton on Charterparties and Bills of Lading.Sweet & Maxwell, 21 st ed. 2008 at paras A-50 7 Nationwide Mediation Academy for NADR UK Ltd. THE LAW OF INTERNATIONAL TRADE AND CARRIAGE. Chapter Nine Charterparties C.H.Spurin 2005 at pg.1 8 (1863) 3 B. & S. 751

where the right of the innocent party to terminate depends on the severity of the breach. In deciding whether a misdescription is repudiatory, therefore, it may now be permissible to look at the extent or nature of the misdescription. If the ship is described as being "at Rotterdam", it may be of no real significance that she is just off the port (particularly if this is because she has already left, and is therefore en route to the relevant load port). The position might be different if she is at Buenos Aires! A further factor to consider in this context is whether the charter also contains a warranty as to the vessel's expected readiness to load. If it does, the "Present Position" box may lose much of its importance, and the courts may more readily infer that a misdescription which does not affect the ship's expected readiness should not, of itself, justify termination. The same expected ready to load date has also been held to be a condition of the charterparty. The words expected ready to load by a certain date mean that in view of the facts known to the promisor when making his contract he honestly expects that the vessel will be ready as stated and that his expectation is based on reasonable grounds. This obligation is a condition, and any breach will entitle the charterer to terminate. The promise is broken if the promisor does not honestly expect, or if he has no reasonable grounds for his expectation.In considering the latter, regard will be had to such knowledge as the responsible official of the shipowner have or ought to have, whether known to the shipowner or not. The combination of the words expected ready to load and a express or implied undertaking that the vessel shall proceed to a port of loading with all reasonable dispatch results in an obligation that wherever she may be she shall start at a time when, by so proceeding, she would normally arrive at the port of loading by the expected date. An estimated time of arrival clause in a charterparty clause has the same effect. This obligation is absolute and the exceptions in the charter will

not excuse a failure to start in time unless the contract expressly so provides.9 Regarding theseterms in respect of loading time it may be interesting to see what the court held in The MihalisAngelos.10 It concerned a charterparty dated 25th May, which stipulated that the vessel was expected ready to load at Haiphon on July 1st. As events developed it became clear that the vessel would probably arrive at Haiphon no earlier than the 27th July. On the 17th July the Charterer repudiated the contract. The court confirmed that a final date of arrival breach of which was stated to give rise to a right to repudiate was a condition. The charterers action of repudiating before the final date for performance amounted to an anticipatory breach of contract. Since the vessel could not have arrived in time in any case, if the charterer had waited until the due date of performance he could have lawfully terminated the contract and claimed damages. His haste to mitigate his potential losses by acting too early meant that he could not claim damages for the anticipated breach by the shipowner. However, the courts awarded the shipowner nominal damages only for the charterer s anticipatory breach and effectively penalised the shipowner for mounting a legal action by awarding costs to the charterer. Time is of essence also regarding the end of the charter i.e. the redelivery.In my opinion, here it is not a problem of condition or not but the question which arises in relation to re-delivery clauses is whether, if the vessel is re-delivered after the expiration of the charter period, the hire is payable at the stipulated rate until the date of actual re-delivery or, the market rates having gone up, at the charter rate until the end of the charter period and thereafter at the market rate until the date of re-delivery? While the NYPE and Asbatime only provide for payment of hire at the charter rate, until the hour of the day of redelivery, the Baltime and Linertime contain an additional provision allowing the charterer to complete a last voyage

9Stewart Boyd CBE, QC; Bernard Eder, QC; Andrew Burrows, QC (Hon); David Foxton, QC; Steven Berry, QC; Christopher Smith. Scrutton on Charterparties and Bills of Lading.Sweet & Maxwell, 21 st ed. 2008 at paras A-50 10 [1971] 1 Q.B. 164

provided that the voyage permits re-delivery about the time fixed for termination of the charter, but for any time exceeding the termination date the market rate is payable if higher than the stipulated rate.11 Looking to case law in The London Explorer12 the charter period was from the time of delivery, for 12 months 15 days more or less in Charterers option. The vessel was delivered on 29 December 1967 but her final voyage was from Japan with cargo for New Orleans and Houston. She was unfortunately caught up in strikes at both discharge ports and could not be redelivered until 24th April 1969, well beyond the original date for redelivery. The question was at what rate should hire be paid for the period beyond the contractual redelivery date assumed to be 13 January on the basis of the 15 days margin in the above wording. But in this case it was the Charterers argued that the additional amount should be damages assessed at the market rate because the market had fallen for that period. So Owners were saying that the Charter should continue beyond that at the charter rate. In the event the Owners arguments succeeded and the extra hire had to be paid at the charter rate. For voyage charters the delivery of the last part of the cargo usually ends the charter. However for time-charters the end of the charterparty can be more complicated than th e beginning. Whether the charterer would like to make the most (or even excess) use of the vessel would depend on the state of the market. If hire rates have risen, the charterer would like to keep the vessel for as long as possible and may seek to order the owners to perform a final voyage which would not be completed by the final terminal date of the charterparty. On the contrary if the hire rates have fallen the charterer may wish to redeliver the vessel as soon as possible and go out into the market to charter another vessel at a lower rate.As said in the introduction, from the owners point of view it will be better to minimise the time lost between the return of the vessel and its handing over to a new charterer. Inevitably, despite the apparent simplicity of hiring a vessel for a specific period of time, the uncertainty inherent
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United Nations Conference on Trade and Development.Charter Parties A comparative analysis.Geneve 22 0ct 1990, at para 190 12 London & Overseas Freighters v Timber Shipping [1972] AC 1, HL

in maritime ventures results in tension between the charterer and ship owner at hand over time. A ship owner can find himself exposed to liability if he is unable to deliver a vessel to a charterer because the previous charter has over run its allocated time, whether that over run / over lap is intentional or not. Where this occurs the owner will, if possible, seek to recover any consequent losses from the previous charterer who over-ran his charter, thereby causing the problem.But If a charterer is liable to pay damages to an owner for late redelivery of the chartered vessel, are those damages limited by the principles of remoteness to the difference between the charter rate and the market rate at the time of redelivery (if the latter is higher than the charter rate) over the length of the over- run period...or can the owner claim damages based on the loss of his next fixture? 13 Briefly In The Achilleas 14 , the vessel was redelivered late. As a result of the late redelivery the shipowner had to renegotiate the following fixture losing $8,000 per day. The vessel was a few days late while the next charter was for 191 days. The court held the shipowners were not entitled to recover the rate difference for the whole period of the future.

Going to consider another term of a charterparty as the laycan window it is possible to note that shipowners and charterers have competing interests when it comes to nominating vessels for performance and fixing the scope of the laycan. As an old adage says time is money, so it is in the charterers' interest to establish a fixed date or range of dates for the arrival of the ship at the port of loading so he can make arrangements to procure the availability of the cargo. It is in the interests of the shipowner, however, to have the date as flexible as possible, to take into account adverse conditions delaying the arrival of the vessel and indeed to secure
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Joanna Grant. LIABILITY FOR LATE REDELIVERY UNDER TIME CHARTER - THE ACHILLEAS.Nordisk Medlemsblad Journal / No. 567 January 2008 14 [2008] 2 Lloyds Rep 275

(in the case of nomination) suitable tonnage at an acceptable rate. Therefore a charterparty usually contains an option entitling the charterer to cancel the contract if the ship is not ready to load within a specified time. Laycan is a period of time within which the vessel should arrive at loading port and tender ready for loading without risk of being rejected by the charterers. As indicated in the name laycan itself, the latter date of agreed time range, i.e. cancellation date, is evidently of bigger importance to the parties since it gives to the charterer very powerful legal instrument of cancellation. Depending on economic factors and substitute tonnage availability the charterer can, but is not obliged to exercise this option, therefore it is not unusual for the parties to come to solution and extend laycan for a day or so, like for instance cl. 11 of SHELLVOY5 and SHELLVOY6, which specifically defines procedure for laycan extension. Anyway, I think that there isno doubt regarding the fact that thelaycan window has to be considered as a condition. It is confirmed in the Niizuru15, where it was held that an obligation on shipowners to narrow a laycan spread for delivery of a vessel under a time charter was a condition precedent to any requirement for charterers to take delivery of the vessel. Furthermorein Universal Bulk Carriers Ltd v Andre et Cie S.A 16 .,Mr Justice Longmore held that in the absence of an express agreement the laycan provision was to be a condition, the Court had to consider the nature of the contract and the relevant surrounding circumstances in order to establish the nature of the clause.

Usually a certain amount of time is agreed between the owner and the charterer for loading and unloading operations: This amount of time is called lay days or laytime. When laytime is exceeded the charterers are in breach of the voyage charter contract and become liable to

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Hyundai Merchant Marine Co Ltd v Karander Maritime Inc [1996] 2 Lloyds Rep. 66 [2000] 1 Lloyd's Rep 459

pay the shipownersliquidated damages by way of demurrage at the agreed rate. The "demurrage rate", expressed in thousands of U.S. dollars per day, is a rate of compensation which varies with the rate for the freight, therefore if freight rates are high then demurrage rates are also high. Prolonged delays can bring this sum to very significant amount; hereof provisions for laytime and demurrage are of utmost importance to both parties. The laytime and demurrage clause imports into a voyage charter an element from time charters, i.e. once the clause is triggered, the mere passage of time earns money for the owner. It is in the interests of the owner that the clause is triggered as early as possible; and of the charterer that the clause is triggered as late as possible. In my opinion charterers are certainly in breach of charterparty where the loading or discharging operation has not been completed before the laytime is expired, but this breach can not be considered as a breach of condition which entitled the shipowners to treat the contract as at an end and to sail away. Rather than a breach of condition, this is a breach of warranty entitling the aggrieved party to claim for damages: infact demurrage is considered by English law to constitute liquidated damages for breach of contract, and more specifically for charterers breach of the duty to load/discharge thevessel within the agreed laytime. However, if we have charterparties concluded in a chain these terms could be considered as condition if it is provided by the charterparty term. In fact these terms will be considered as conditions where the supposed intentions of the parties, as indicated from the terms and the background of the contract, so indicate. In this case the detention of the ship beyond the lay days represents a breach that goes to the root of the contract entitling the innocent party to treat the contract as repudiated and to claim the damages.

As it is confirmed in Bunge v Tradax time is of essence in mercantile contract and after due

consideration I think this apply to charterparty. International sales are incredibly fast and interconnected: so the failure by one party to perform on time his obligation could cause a lot of problem for the innocent party that could find herself in breach of another contract stipulated with a third party: a ship owner can find himself exposed to liability if he is unable to deliver a vessel to a charterer because the previous charter has over run its allocated time while the charterer will be unable to ship their cargo as originally intended if the ownerfails to make their vessel available at the agreed time. So it is necessary in order to limit the damage they may suffer in that case to consider some terms of the charterparty like the delivery or the laycan window as to be condition. In other case like redelivery of the vessel or clause regarding laytime or demurrage I think it is better to speak about warranties so the shipowner can claim for damages from the charterer.

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REFERENCE: Case law Bunge Corp v Tradax Export SA [1981] 2 Lloyd 1 (HL) Behn v Burness(1863) 3 B. & S. 751 The MihalisAngelos[1971] 1 Q.B. 164 The London Explorer, London & Overseas Freighters v Timber Shipping [1972] AC 1, HL The Achilleas [2008] 2 Lloyds Rep 275 theNiizuru, Hyundai Merchant Marine Co Ltd v Karander Maritime Inc [1996] 2 Lloyds Rep. 66 Universal Bulk Carriers Ltd v Andre et Cie S.A[2000] 1 Lloyd's Rep 459 Secondary Materials: Benjamins.Sale of Goods. Sweet and Maxwell, The Common Law Library, 8th ed. 2010

United Nations Conference on Trade and Development.Charter Parties A comparative analysis. Geneve 22 0ct 1990, at para 190

Stewart Boyd CBE, QC; Bernard Eder, QC; Andrew Burrows, QC (Hon); David Foxton, QC; Steven Berry, QC; Christopher Smith. Scrutton on Charterparties and Bills of Lading.Sweet & Maxwell, 21 st ed. 2008

Nationwide Mediation Academy for NADR UK Ltd. THE LAW OF INTERNATIONAL TRADE AND CARRIAGE. Chapter Nine Charterparties C.H.Spurin 2005 Jhon F. Wilson. Carriage of Goods by sea. Pearson Education, 6th ed. 2007

Joanna Grant. LIABILITY FOR LATE REDELIVERY UNDER TIME CHARTER - THE ACHILLEAS.Nordisk Medlemsblad Journal / No. 567 January 2008

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