In Lansat Shipping Co v. Glencore Grain BV (25 March 2009) the Commercial Court held that a liquidated damages clause relating to late redelivery in a time charter was penal and unenforceable. The decision highlights a creativity on the part of some owners in seeking to obtain from charterers more extensive damages than are typically recoverable under English common law.
Lansat chartered the bulk carrier "Paragon" to Glencore for a period of three to five months. The charter, which was on amended NYPE form, included a provision which stated, "If...the last voyage will exceed the maximum period, should the market rise above the Charter Party rate in the meantime, it is hereby agreed that the charter hire will be adjusted to reflect the prevailing market level from the thirtieth day prior to the maximum period...until actual redelivery of the vessel to the Owners".
Glencore redelivered the vessel six days late, and paid Lansat hire at the market rate for the period of the overrun, so covering the normal English law measure of damages in such circumstances. Lansat sought to enforce the charter provision quoted above, which would have entitled them to recover a further US$471,603 from Glencore.
The Commercial Court found that the clause on which Lansat sought to rely was penal in nature and unenforceable. The Court held that the provision was not designed to compensate Lansat for losses resulting from late redelivery, but rather was a punitive term intended to deter charterers from ordering the vessel on a last voyage which could not reasonably be expected to end before the expiry of the charter period.
Lansat argued that the clause was a genuine pre-estimate of loss and that it was reasonable in circumstances where, because of a lack of information about a proposed last voyage, they could not determine whether a last voyage order was in fact illegitimate and entitled them to take early redelivery. The Court rejected this argument, finding that it was a matter for owners to decide whether to accept final voyage orders, and that, having decided to perform a final voyage, owners were only entitled to damages if and to the extent that the period of the voyage extended beyond the end of the charter period.
Although the owners were unsuccessful in this case, the Court emphasised it will normally seek to uphold clauses negotiated between commercial parties and will not be too stringent in assessing whether a clause is a penal clause. There is therefore ample scope for owners and charterers to adopt innovative approaches to the difficult issues which arise, particularly in volatile markets, at the end of time charters.
Enquiries about the "Paragon" judgment should be made to Alistair Feeney or HFW's Trade & Energy Group.
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