Reviewing the English Court judgment: The KRITI AKTI [2003] EWHC 1634 (Comm).
In July 2003 the English Commercial Court delivered a judgment where the question mentioned in the heading was considered and answered.
The facts of the matter were that the owners of the KRITI AKTI time chartered the vessel on a Shelltime 3 Form with various amendments and additions for a period of 11 months, 15 days more or less in charterers' option. The vessel was delivered into service under the charter on 25 May 2000.
The charter contained the following three clauses which were of particular importance to the dispute between the parties:
Clause 3
"Owners agree to let and charterers agree to hire the vessel for a period of 11 (eleven) months, 15 days more or less in charterers' option …"
Clause 18
"Notwithstanding the provisions of clause 3 hereof, should the vessel be upon a voyage at the expiry of the period of this charter, charterers shall have the use of the vessel at the same rate and conditions for such extended time as may be necessary for the completion of the round voyage on which he is engaged and her return to a port of redelivery as provided by this charter …" (emphasis added).
Clause 50 - Extension
"Any loss of time during which the vessel is off-hire shall count as part of the charter period and may be used by charterers at their option as an extension of the aforementioned charter period"
During the charter of the vessel she had been off-hire on various occasions, and although there was disagreement between the owners and the charterers as to the period of off-hire, for the purposes of this matter, it was necessary to assume that the charterers' figure was correct as otherwise simply it would not have been possible to render a judgment and answer the question "What is the period of this charter ?".
The eleven months period provided by clause 3 expired on 24 April 2001. On 13 March 2001, the charterers told the owners that they were exercising their option to extend the final date of the charter to 14 June. That was on the basis that they were entitled to add to the eleven months period, the further 15 days provided for in clause 3 and the off-hire period.
On 29 May 2001 while the vessel was discharging at Saõ Sebatiaõ, the charterers ordered her to carry out another voyage with cargo from Saõ Sebatiaõ to New York for discharge and redelivery there. The owners took the view that the charter had already expired and that the vessel should therefore be redelivered where she was. They offered to perform the proposed voyage to New York but only at an increased rate of hire.
On 1 June 2001 the charterers issued fresh voyage orders requiring the vessel to sail from Saõ Sebatiaõ to Santos and there load a cargo for carriage to New York, where she would be redelivered. Again the owners refused requiring the charterers to redeliver the vessel on completion of discharge at Saõ Sebatiaõ if they were unwilling to pay additional hire for the voyage to Santos and then to New York. The charterers declined to agree to these terms, and the owners therefore took back the vessel at Saõ Sebatiaõ leaving the charterers to find another vessel to carry out the voyage to New York.
In due course the charterers commenced arbitration against the owners seeking damages for their refusal to comply with what they maintained were legitimate orders for the vessel's employment. It was apparent that their claim could succeed only if they were entitled to take advantage of clause 18 of the charter, which allows the charterers to complete a final round voyage on the charter terms if the vessel is already engaged on it at the expiry of the charter period. It was therefore necessary for the charterers to establish that the period of the charter had not already expired on 7 June when the vessel completed discharge at Saõ Sebatiaõ and that they could only do if they were entitled to add to the eleven months provided for in clause 3, the 15 days "in charterers' option" also provided for in that clause and the period of off-hire allowed as an extension under clause 50.
Accordingly the parties asked the arbitration tribunal to determine the following two questions as preliminary issues:
"(i) Whether the "period of this charter" in clause 18 includes or excludes any additional period for which charterers may elect to keep the vessel on charter in exercise of their option under clause 50, and
(ii) If it includes clause 50 periods, whether the charter as so extended by clause 50 includes the tolerance of 15 days in clause 3"
The arbitration tribunal held that the charterers could add the off-hire period to the 11 months, but that they could not add to that the 15 days in charterers' option referred to in clause 3. They reached this latter conclusion with obvious reluctance and only because they considered that they were bound by the decision of the Court of Appeal in the ASPA MARIA [1976] 2 Lloyd's Rep. 643. Accordingly they held that the charterers' claim failed.
The charterers subsequently obtained leave to appeal on this latter question, and the owners were given leave to appeal on the question whether the expression "the period of this charter" includes any off-hire period which the charterers choose to make use of as an extension to the charter under clause 50.
Thus all the issues canvassed before the arbitration tribunal were open for argument before the court.
Regarding the effect of clause 50 and thus issue (i) mentioned above, the Moore-Bick J inter alia states that its intention was clear enough, namely that the charterers were entitled if they so wished to add any period of off-hire to the period of the charter thus restoring to them a period of practical service of which they would otherwise be deprived, and it was further added that "the expression "the charter period" in clause 50 obviously refers to the period prescribed in clause 3".
Regarding the construction of clause 18 and thus the issue (ii) mentioned above, inter alia due to the fact that the owners had sought to rely on the Court of Appeal's judgment in the ASPA MARIA which the owners contended was binding authority that the 15 day (option) period should not be included, it was necessary thoroughly to consider not only that judgment, but also other judgments relevant to the construction of the charter party. The other judgments were specifically the Court of Appeal's judgment in the DIONE [1975] 1 Lloyd's Rep. 115 and the House of Lords' decision in the PEONIA [1991] 1 Lloyd's Rep. 100.
In the ASPA MARIA, the judgment primarily relied upon by the charterers, the vessel was chartered for six months, 30 days more or less, at charterers' option, but with an expressed option for the charterers to continue the charter for a further period of six months, 30 days more or less. The question in that judgment was whether the option meant that the charterers would have the vessel at their disposal for a total of 12 months plus or minus 60 days, or 12 months plus or minus 30 days.
In that judgment Lord Denning inter alia stated that "If the "30 days more or less" were not mentioned, the law would imply a reasonable margin of tolerance before or after the six months" and further "The reason being because the time charterer of the ship cannot be sure exactly of what date he can get the ship redelivered. He must have some tolerance before the end of the six months or a few days afterwards. But the parties can expressly stipulate what that margin of tolerance is", and then Lord Denning concluded "So here the 30 days is not an extension of the charter. It is simply an express agreement as to the tolerance permitted".
Lord Denning then concluded that the charter period in the ASPA MARIA, once the extension option had been exercised by the charterers, was in fact merely 12 months plus or minus 30 days. Accordingly, the owners of the KRITI AKTI sought to argue that the 15 day option in the KRITI AKTI matter was in fact merely a tolerance and thus not a period which the charterers were entitled to utilise the vessel as of right, with the consequence that that period of 15 days should not count as part of "the period of this charter" as stipulated in clause 18.
Moore-Bick J in the KRITI AKTI did distinguish that matter from the ASPA MARIA as the two judgments did not concern exactly the same aspects, and furthermore relying on the DIONE and the PEONIA, Moore-Bick J reached the conclusion that "the period of this charter" in clause 18 did encompass not merely the basic period of 11 months as per clause 3, but also the 15 days optional period as per clause 3 and the possible off-hire extension period as per clause 50.
Or in other words, the charterers' appeal was allowed, the owners' appeal failed, and it was thus decided that "the period of this charter" in the context of the Shelltime 3 C/P is actually all three periods mentioned above. On the basis that the off-hire periods were as alleged by the charterers, then the charterers' order regarding the final voyage was legitimate, and thus the owners were liable in damages for not following same.
This has the further effect that it seems now to have been established that the terms and conditions of any given charter will remain in full effect during the "tolerance" periods discussed above.
Finally, however as a cautious comment, it should be added that it is reported that leave to appeal to the Court of Appeal has been granted to the owners, and thus we will follow-up on this matter once the Court of Appeal's judgment is made available, which will however not be within the near future.
Published with the kind permission of the Danish Defence Club.