Singapore: The Chem Orchid: Proper Termination Of A Bareboat Charter Party

The recent decision of Justice Steven Chong addresses certain important issues which are of practical significance to ship-owners and bareboat charterers alike. Briefly, the facts are as follows:

1. The Facts

Four separate in rem actions were commenced against the Chem Orchid (the "Vessel") pursuant to separate claims by the plaintiffs against the demise charterer of the Vessel (the "Defendant"). The owner of the Vessel then applied to set aside the in rem writs on the basis that the demise charter had been terminated before the writs were issued. If this was the case, the in rem jurisdiction of the Singapore High Court was wrongly invoked because it is a requirement that the Vessel had to be owned by the Defendant or at least demise chartered by the Defendant at the time the writs were issued. Justice Chong held that the purported notice of termination issued by the owner to the Defendant was invalid and, therefore, the Defendant was still the demise charterer when the writs were issued. Therefore, the plaintiffs were entitled to invoke the court's in rem jurisdiction against the Vessel and the owner's application to set aside the writs failed. Nevertheless, Justice Chong went on to consider two important questions that were raised.

2. The Issues

(a) The Physical Redelivery Issue

First, the physical redelivery issue – assuming the purported notice of termination was valid, was this sufficient to terminate the demise charter or was the Defendant also required to physically redeliver the Vessel to bring the demise charter to an end? Justice Chong affirmed the general rule that physical redelivery to the vessel's owner is necessary to bring a demise charter to an end. This is because of the distinctive nature of a demise charter.

Justice Chong explained: "the complete transfer of possession and control from the ship-owner to the charterer is the very quintessence of a bareboat charter. Thus, physical redelivery (which effects a reversion of the transfer of possession and control) is necessary for its termination."

Counsel for the Vessel's owner argued that the parties had effectively contracted out of this requirement in the terms of the demise charter. However, Justice Chong disagreed with this argument as the facts of the case pointed otherwise. He further expressed serious doubt that parties to a demise charter could contract out of the requirement for physical redelivery. This is because of the principle just expressed that, by its very nature, a demise charter cannot in fact be terminated until the demise charterer returns possession and control to the owner. Additionally, because of the fact that the demise charterer retains possession and control until physical redelivery of the vessel to the owner, third parties dealing with the demise charterer, who would reasonably assume that the demise charterer is the owner of the vessel, should be protected by being allowed to arrest the vessel to secure any claim such third parties may have against the demise charterer. If an owner could terminate a demise charter simply by giving the charterer a notice of termination, third parties would be prejudiced. Justice Chong observed, "If they [i.e. third parties] deal with the vessel after contractual termination but before redelivery, it is possible that they may have in fact dealt with neither – the owner certainly does not have control and possession of the vessel during this curious period where she is in 'limbo' whereas the party in full possession and control is no longer the bareboat charterer following contractual termination. In that event, the third party will have no basis for arresting the vessel and is thus left without security for its claim."

Therefore, Justice Chong reiterated the general rule that a bareboat charter party is terminated only upon physical delivery of the vessel back to the owners. Further, he doubted that it would be right to allow parties the freedom to contract out of this general rule.

(b) The Constructive Redelivery Issue

Another related question Justice Chong addressed was whether the Vessel had been constructively redelivered, thereby terminating the demise charter before the writs were issued. The owner's argument that this had been the case was rejected by Justice Chong. On the facts, Justice Chong was not able to find that the Vessel had been constructively redelivered. However, of significance is Justice Chong's firm view that he did not think the doctrine of constructive redelivery should have any place in Singapore law. He saw no need for it and further expressed concerns that third parties could be unduly prejudiced by the acceptance of the doctrine. Therefore, for the same reasons he gave for rejecting the notion that parties to a bareboat charter party could contract out of the requirement for physical redelivery, he rejected the doctrine of constructive redelivery.

3. Comment

The balance Justice Chong struck between the competing interests of ship-owners and third parties dealing with the bareboat charterers and the ship is clearly a fair one. If a bareboat charter party could be terminated by a private notice from the owner to the charterer, third parties providing services to, or utilising the services of, the vessel after the notice had been sent could be left with no security for any claim they may have against the bareboat charterer. The ship-owner, on the other hand, is fully aware of and accepts the risk that his ship may be arrested by a third party while she is in the possession and control of the charterer. That is a normal incident of a bareboat charter party. In Justice Chong's words, "... an owner who lets his vessel out on bareboat charter does so with his eyes wide open: he knows the risks attendant to such an arrangement and has made a considered commercial decision to proceed. By contrast, a third party has little way of knowing whether the vessel he is dealing with is on bareboat charter, let alone that the bareboat charter has been terminated."

The position in Singapore is therefore clear. A bareboat charter party can only be terminated by the actual (as opposed to constructive) physical redelivery of the vessel by the charterers to the owners.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.