#6703 - Lansat Shipping V. Glencore - Commercial Remedies BCL

Lansat Shipping v. Glencore

Facts

The charterparty is dated 23 November 2006 and is on an amended New York Produce Exchange form under which the respondent (‘the charterers’) chartered the vessel Paragon for ‘about minimum 3 to about 5 months (about means +/- 15 days)’. By clauses 4 and 36, the rate of hire was US$29,500 ‘per day or pro rata’.

Clause 101 of the Charterparty provided:

“The Charterers hereby undertake the obligation/responsibility to make thorough investigations and every arrangement in order to ensure that the last voyage of this Charter will in no way exceed the maximum period under this Charter Party. If, however, Charterers fail to comply with this obligation and the last voyage will exceed the maximum period, should the market rise above the Charter Party rate in the meantime, it is hereby agreed the charter hire will be adjusted to reflect the prevailing market level from the 30th day prior to the maximum period date until actual redelivery of the vessel to the Owners.”

The vessel was delivered under the charterparty at 16.45 GMT on 29 November 2006 and it is common ground that the latest time for redelivery of the vessel to the owners was 16.45 GMT on 14 May 2007. In the event the vessel was redelivered at 20.45 GMT on 20 May 2007, which was 6.166 days after the latest permissible time for redelivery under the charterparty.

The owners claimed damages for breach of the charterparty by reference to clause 101. They said that the prevailing market rate calculated in accordance with the clause was US $46,083.22 per day as compared with the charterparty rate of US $29,500 per day.

Holding

For these reasons, the true position is that, in the absence of clause 101, if the final voyage order was an illegitimate order, and thus a breach of contract, and the owners had performed the voyage they would have been entitled to recover hire at the contractual rate until the contractual date for redelivery and damages at the market rate thereafter until actual redelivery.

Rule against penalties applies to second sentence of Clause 101

The second sentence applies on the premise that there is a breach of the obligation in the first sentence, since it begins ‘if, however charterers fail to comply with this obligation’. It is thus an agreement as to what should happen in the case of breach and is thus a classic provision to which the law of penalties applies.

What damages would be payable for breach of the requirement under the first sentence?

In this case, unless the first sentence of clause 101 is a condition of the contract (as to which see below), the breach of the clause simply entitles the owners to damages. It does not, as Mr Baker submitted, have the effect of treating the charterers as having persisted in the breach so as to repudiate the charterparty. Nor does it entitle the owners to treat the contract at an end… If there was a breach of the first sentence of the clause, it seems to me that the position would be the same as in the ordinary case of an illegitimate order discussed above, namely that the owners would be entitled to refuse to perform the voyage and to require voyage orders which complied with it.

In short clause 101 is concerned with the consequences of a clause that, unless it is a condition, does not entitle the owners to treat the contract as at an end. If there is a breach of the clause, for the reasons given earlier, the owners are in principle entitled to damages assessed on the basis which, as Lord Hoffmann put it, was well known to the parties, namely payment at the market rate after the contractual date of redelivery.

Unless it is a condition of the charterparty (as to which see below), a breach of the first sentence of the clause is not a repudiatory breach of the charterparty and I can see no reason to construe the second sentence of clause 101 as if it was. Yet that is what the owners seek to do because their argument that it contains a pre-estimate of the loss assumes that, but for the breach, the vessel would have been delivered to them before the redelivery date, which in its turn assumes that they accepted the breach as a repudiation of the charterparty. Further, for the reasons I have already given, I do not think that the clause has the effect of treating the charterers as having persisted in the breach so as to repudiate the charter.

Second sentence of Clause 101 is not a condition

I would accept Mr Hirst's submission that the test for the construction of a term as a condition is a very difficult one to satisfy but, whether that is so or not, the first sentence of clause 101 is not a condition. For the reasons I have already given, I would hold that a breach of the clause at most gives the owners the option not to perform...