Early Termination of Time Charter
What happens Early Termination of Time Charter?
If the vessel suffers a very serious casualty, such as a major fire in the engine-room or a grounding causing extensive damage to shell plating, the question whether the time charter is thereby brought to a premature end depends on the time required to repair the vessel and the time left before the vessel is due to be redelivered. The cost of such repairs may also be relevant, since owners are not obliged to repair, if the cost would be disproportionate to the ship’s value in a repaired condition.
Many time charters legislate indirectly for this situation by providing that, in the event of the vessel being off-hire for more than a certain number of days, charterers have the option to cancel the charter. In the absence of such a clause, there are two main ways from a legal perspective in which the charter – and the contracts of carriage contained in bills of lading or sea waybills – terminate prior to discharge of the cargo: repudiatory breach and frustration.
In addition, we have seen that the charter is also brought to an end, if the owners exercise their right to withdraw the vessel from charterers’ service for late or non-payment of hire. In this latter case, the contracts evidenced by any bills of lading remain in force.
Consequences of such termination on the rights and obligations that exist between cargo interests and owners, it being assumed that owners are the contractual carrier under the bills of lading. Given that the time charter on the one hand and the contracts of carriage evidenced by bills of lading on the other hand are very different types of contract, it is not surprising that an event which causes the cargo-carrying voyage to be abandoned may not necessarily cause the time charter to terminate. And an event, such as withdrawal, which causes the charter to terminate will not usually cause pre-existing bill of lading contracts to terminate.
The first question after any major casualty is: Is it feasible to complete the voyage in the original vessel after repairing it?
If it is, owners are bound to carry out such repairs as are necessary to enable them to carry the cargo to destination (Kulukundis v Norwich Union Fire Insurance Society ).
In this situation, the contract of carriage under any bill of lading remains alive and owners must take all reasonable steps to complete it, whether or not charterers have opted to exercise a contractual right to cancel the charter. Owners are entitled, but not obliged, to choose to tranship the cargo at their expense in order to get it to destination.
If they elect not to tranship, and there is no alternative method of carrying the cargo to destination, the bill of lading contracts come to an end.
If the casualty is attributable to some breach by one party, the contract of carriage will terminate by reason of that party’s repudiatory breach. If breach is alleged, it will generally be owners who are said to be at fault.
Occasionally, however, a voyage cannot be continued because of breach by cargo interests. An example of such breach would be where shippers have shipped goods possessing some hazardous characteristic of which the Master and owners had no reason to be aware, without giving due notice of such hazardous properties.
If the cargo were explosive or highly flammable, and led to the vessel being so severely damaged that further progress was impracticable, that event would constitute a repudiatory act by cargo interests.
Frustration occurs where, without any breach by either party, performance of the contract becomes illegal or impossible by reason of a supervening event or if the effect of the event in question is such as to destroy the identity of the agreed service.
The bill of lading contract will also be frustrated or repudiated if completion of the voyage is physically possible, but not within a commercially reasonable time or within the foreseeable future. In such a case, it is said that the commercial purpose of the voyage has been frustrated.