Hire period and early redelivery


Published: 21 May 2007

Commenting on a recent arbitration award dealing with the hire period being fixed on the basis of redelivery notice periods in circumstances where a vessel is redelivered extremely early during the hire period (shortly after delivery into the C/P).

In a situation where charterers redeliver a vessel to owners prior to expiry of the charter period, the general rule is that there has been a repudiation and the owner will have a choice whether to accept the repudiation (and claim damages) or to reject it and hold the charterers to the contract.

This would at least apply where the hire period is simply described as a simple, stated period (e.g. "12 months").

In a recent arbitration award, the situation was slightly different insofar as the hire period was described as being without guarantee ("WOG") although the fact that the hire period was without guarantee proved to be without relevance for the outcome.

The vessel was chartered for a time charter trip described as "ABT 20 days WOG", and it was further stipulated that charterers had to give owners "not less than 20 days' approximate and 10/5 days' definite notice of vessel's expected date of redelivery." It turned out that the trip in fact took only 20 days, and the owners took redelivery when this was tendered by charterers but did so under protest. The owners argued that charterers could not redeliver so early and withheld overpaid hire to cover the damages they considered they had suffered. The charterers reclaimed the overpaid hire in arbitration.

The evidence in this particular case showed that the trip was shorter than anticipated because cargo operations proceeded far more rapidly than the charterers had expected. It was also concluded by the arbitrators that the original estimate of 20 days was an estimate made in good faith by charterers.

The owners argued that the giving of "proper notices" of expected redelivery was a condition precedent to the charterers' right to redeliver the ship. They also argued that notices served commercial certainty, that "accurate" notices should be given and that the function of such notices was to define the charter period. This was rejected by the arbitrators.

The arbitrators held that nothing in the C/P terms meant that the giving of redelivery notices was a condition precedent to redelivery. It was also accepted by the arbitrators that there was always a great deal of uncertainty in relation to the timing of ship's operations and that this was the very reason for margins being built into time charter periods and also the reason why provisions regarding redelivery notices referred to such notices having to be "approximate", "expected" and similar. Finally, it was also said that it was unlikely that owners and charterers had intended to agree that redelivery notices, by themselves, should define the charterers' obligations in respect of when a ship might be properly redelivered.

It is noteworthy that the arbitrators say that this would be the result even if the hire period had not been "WOG" and the owners were adequately protected by what was agreed regarding the charter period and the requirement for notices.

On this point (i.e. whether provisions relating to the giving of notices for redelivery are relevant for defining the hire period), the award is in fact in conflict with an earlier High Court decision. This earlier 1988 decision held, firstly, that the mere use of the word "about" indicated an "absence of any intention to make any enforceable stipulation" as to the hire period and that only a requirement of good faith with regard to the hire period was required. Secondly, and more importantly, the High Court decision held that a stipulation in the C/P requiring charterers to give owners "not less than 15/10 days' approximate and 7 days' definite notice" in fact meant that charterers must genuinely have believed that redelivery would take place in about 15 days and, from that, it was legitimate to infer that the actual period which the parties expected to elapse after first notice was given would be 15 days. In other words, the High Court held that earliest redelivery, under such agreed terms and with such early redelivery, could take place after 15 days, at the earliest. These results are, however, relevant only in the rather rare circumstances (as in these cases) where for one reason or another, the redelivery takes place extremely early and will not apply in the more ordinary course of a more long running time c/p where the hire period is described without being about" or as "without guarantee" and the provisions regarding redelivery notices will operate normally when the c/p has run for some time – at least beyond the extremely early redelivery.

This award once again shows that it is important, from the outset, that estimates relating to inter alia hire periods are made in good faith. The award also serves as a reminder that both owners and charterers should consider the wording carefully in order to ensure that their intentions for the contract are actually covered by what is being agreed.

Finally, this arbitration award shows that there is no absolute certainty when a dispute results in litigation as the award on an important point is in contrast to a previous High Court judgment.

(2007) 715 LMLN 4 (London Arbitration 5/07)
(1995) 408 LMLN (The "Lendoudis Evangelos II")