Time Charter Overlap
In the event of time charter overlap, charterer’s liability alters, depending on whether or not charterer is in breach of contract. If ship redelivery is made within the period of tolerance and so the charterer is not in breach of contract, charterer will have to pay for the extra time at the normal charter rate. But, if ship redelivery is made outside the period of tolerance, damages will be assessed in relation to the current market rate of hire.
Lately, courts have applied the legitimate last voyage test in deciding whether a time charterer is in breach of contract. Under the legitimate last voyage test:
Time Charterer is not in breach if the ship was dispatched on its final voyage time charterer could reasonably have expected the voyage to be completed within the charter period plus the permitted margin. Legitimacy of the voyage is consequently judged at the time of the ship’s departure and not at the time the order was given. Even though the order for the final voyage is legitimate, time charterer is still under an obligation to redeliver the ship on time. As a result, if supervening events prevent time charterer from redelivering the ship on time, time charterer will be liable for breach of contract even though the failure was due to circumstances beyond charterer’s control. In such an event time charterer will remain liable for hire at the charter rate until redelivery, together with damages to cover any excess period when the market rate of hire is higher than the charter rate. However, time charter-party clauses may relieve charterers from such liability and require shipowners to complete a legitimate last voyage, free of any liability in damages for late delivery, provided the unexpected delay does not involve any fault on the part of the time charterer. Such clauses do not confer a right to require the shipowners to embark on an illegitimate last voyage unless the clause is so worded as to override the time charterer’s obligation to redeliver the ship on time. For example, Shelltime 3 (clause 18) charter-party form which states that:
“should the ship be upon a voyage at the expiry of the period of this charter, time charterers shall have the use of this ship at the same rate and conditions for such extended time as may be necessary for the completion of the round voyage on which she is engaged”
In World Symphony case, Court of Appeal held that these words clearly overrode the clause specifying the charter period and entitled the charterers at any time during that period to give orders for a final voyage in the knowledge that it would overrun the time otherwise stipulated for redelivery of the ship. Throughout the whole of such a voyage the charterer would be entitled to the use of the ship at the normal charter hire rate.
On the other hand, in The Dione case, Lord Denning MR outlined that:
- if the time charterer sends the ship on an illegitimate last voyage, that is, a voyage which it cannot be expected to complete within the charter period, then the shipowner is entitled to refuse that direction and call for alternative instructions for a legitimate last voyage. If the time charterer refuses to give alternative instructions for a legitimate last voyage, the shipowner can accept charterer’s conduct as a breach going to the root of the contract, fix a fresh charter for the ship and sue for damages.
- If the shipowner accepts the direction and goes on the illegitimate last voyage, shipowner is entitled to be paid, for the excess period, at the current market rate if higher than the charter rate.
In The Dione case, the ship had been chartered for a period of 6 months, 20 days more or less in charterer’s option. When the ship was sent on final voyage the charterers could not reasonably have expected redelivery by the expiry of this period on 28 September. Ship was eventually redelivered on 7 October. Time charterers were held liable to pay hire at the contract rate up to 28 September and at the market rate thereafter. When assessing damages for breach of contract in such circumstances, the relevant market rate is taken to be the current rate for a time charter of equivalent length to the one breached, and not the rate for a theoretical voyage charter based on the illegitimate last voyage.
In The Johnny case, the ship had been chartered on Baltime charter-party form for minimum 11/maximum 13 months, which period expired on 7 November 1974. On 19 September 1974, the ship was sent on a last voyage to Karachi, as the result of which the ship was redelivered to the shipowners 29 days late. In assessing the appropriate market rate for those 29 days the court held that the calculation should be based on the current rate for an 11/13-month time charter and not, as the shipowners argued, on the current rate for a voyage charter to Karachi.