Tough choices for Charterer over GoA transit dispute


Published: 16 June 2014

The Association is grateful to Messrs. Lax & Co for contributing the following case note for members' reference.

The situation

A charterer can be placed in a difficult position when they are faced with a situation where their counterparty has made a promise to perform a certain obligation, but it turns out that this performance lies within the discretion of a third party.

FD&D advice

In the subject case the charterers were presented with a situation where they had chartered the vessel on the basis that she was free to perform a particular service, but it was discovered that the disponent owners would only be able to do so at the discretion of the actual head-owners, due to different charter terms up and down the charter chain.

This left the charterers with a choice to make the best of a bad situation, they had not gotten from the deal what they expected or wanted and could suffer loss by continuing with the charter, or proceed with the significant choice of terminating the charterparty. Neither of these choices would be free from risk.

Before making a choice, however, a charterer (or indeed a shipowner) should always undertake an analysis of both the legal and commercial aspects of the case so that they can assess whether any particular course of action chosen has a balance of risk and possible benefit which fits the appetite.

That can sometimes mean making a decision which is "legally speaking" a risk, but which commercially makes a lot of sense.

The Association is always ready to assist FD&D members with these situations, giving both legal and practical advice. It is likely, however, that before a decision is made to consider a termination of a contract, outside legal advice would be sought in order to ensure any such step is taken in as considered a manner as possible given the likely consequences which may follow.

Should members have further queries, they are asked to contact the Association.