Originally published in BLG Marine, Energy and Trade notes, January 2008
The Court of Appeal decision in the "ACHILLEAS" redefines the manner in which damages are calculated following the late redelivery of a chartered vessel. Transfield Shipping Inc. of Panama v Mercator Shipping Inc. of Monrovia (the "ACHILLEAS") (2007).
First came their Lordships' House in the "PEONIA" (1991) upsetting a century of "settled" law that if a hapless charterer sent his chartered ship on a legitimate last voyage, he paid the charter rate throughout. He does not - until early September 2007 he paid the over run at the market rate if higher. Now comes the Court of Appeal in the "ACHILLEAS" where damages previously thought to be around US$160,000, based on the market rate over run, came out at nearly US$1.4m. Redeliver beyond your agreed date and bear some serious consequences.
In the "ACHILLEAS" the vessel was fixed for about five to seven months at a daily rate of US$13,500. By an addendum dated 12 September 2003, she was fixed in direct continuation for a further period of about five to seven months at a daily hire rate of US$16,750. The maximum duration of the extended period expired on 2 May 2004. On the basis of time charterers' redelivery notices, owners then fixed a period charter of about four to six months with Cargill International SA at a rate of US$39,500 per day. They gave a laycan, based on time charterers' redelivery notices of 28 April to 8 May 2004. In the event, the vessel was delayed and was not redelivered until 11 May, i.e. nine days late and three days outside the laycan agreed with Cargill.
On 5 May, knowing that the vessel would be redelivered too late for their fixture, Cargill agreed that the daily rate of hire would be reduced from US$39,500 to US$31,500, the market having fallen by US$8,000 per day. That Cargill charter lasted 191 days and 11 hours and owners claimed damages from their time charterers for the whole of that period at the rate of that US$8,000 per day. That late delivery was, of course, a breach of contract and Mr Justice Clarke had to decide whether owners' damages were limited to the difference between the time charter hire rate and the market rate for the nine days of the overrun or whether owners could claim for their full loss which amounted to US$1,364,584.37.
The "ACHILLEAS" went to the Court of Appeal and the Court found that the time charterers who were, of course, in the business of chartering, knew that at the end of their fixture owners would re-charter "ACHILLEAS" and that, if not redelivered on time, the market could go up or down. Time charterers took that risk on themselves. Owners refixed on 21 April. They did not make their subsequent fixture with Cargill limited to the very day of redelivery - they left a sensible laycan (28 April - 8 May) after receiving time charterers' 10 days notice of redelivery on 20 April. On 23 April, time charterers gave a seven day definite notice of redelivery for 28 April to 2 May. Having done so, no doubt aware that the market was rising, they made a last minute spot fixture. Why not? They would have thought they would only have to pay the market rate for the overlap. How wrong they turned out to be!
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