Charterparty Hire Rate Post-Redelivery: Smart Gain Case Analysis

The High Court case of Smart Gain Shipping Co Ltd v Langlois Enterprises Ltd [2023] EWHC 1683 (Comm) found that a ship owner could recover USD 74,506.70 for loss of time at the charterparty hire rate (not the market rate) for time spent hull cleaning after a vessel had been redelivered to Owners.

Background to the charterparty

Langlois Enterprises Ltd (the “Owners”) and Smart Grain Shipping Co Ltd (the “Charterers”) entered into a time trip charterparty on an amended NYPE form for the carriage of metallurgical coke in bulk on board the M/V Globe Danae (the “Vessel”).

The charterparty contained the following hull-fouling clause (clause 86):

“Owners not to be responsible for any decrease in speed/increase in consumption of the Vessel whether permanent or temporary cause [sic] by Charterers staying in ports exceeding 25 days trading in tropical and 30 days if in non-tropical waters. In such a case, underwater cleaning of hull included propeller etc. to be done at first workable opportunity and always at Charterer’s time and expense. After hull cleaning vessel’s performance warranties to be reinstated.”

What happened?

Charterers accepted delivery of the Vessel on 10 June 2021. Cargo was loaded in India and the Vessel sailed to Brazil;
Receivers rejected the cargo at disport and the Vessel remained idle in a laden state in tropical water in Brazil for at least 42 days;
The cargo was finally discharged and Charterers subsequently redelivered the Vessel at Acu in Brazil on 4 September 2021, without cleaning the hull;
Owners’ follow on fixture required her to sail to Tubarao, Brazil where she arrived on 9 September and underwent underwater hull and propeller cleaning prior to delivery into her next fixture on 16 September.

The Dispute

A dispute arose between the parties for Owners’ time lost spent hull cleaning and arbitration was commenced. In short:
- Owners advanced a simple claim under clause 86 (above), claiming that loss of time for cleaning was at Charterers’ expense; and
- In defence, Charterers argued that their obligation to clean ended when the vessel was redelivered so that the only available claim was one in damages and Owners could not prove they had suffered a loss of hire.
The arbitrators’ found in favour of Owners finding that the purpose behind clause 86 was to assign the responsibility of risks of hull fouling if the Vessel remained idle at Charterers’ orders. They found that the Owners had a claim in debt (not only damages) for the loss of time.
Charterers appealed the decision under s.69 of the Arbitration Act 1996.
The High Court was asked to consider whether Owners were entitled to claim the hire rate (and related expenses) after redelivery of the Vessel or whether they should have been limited to a claim in damages against the Charterers for breach of the charterparty.

The High Court decision

Charterers’ case was that the Owners were limited to a claim for damages only – not expenses. It focused on the need for Owners to prove loss of time since, as they claimed, liability for underwater cleaning had fallen away after redelivery. The Charterers also raised a concern that Owners would receive a windfall if the Vessel were cleaned under a new fixture, thereby receiving hire from the old Charterers and the new Charterers for the same period. The High Court dismissed this concern, stating it was far more likely in practice that Owners would postpone the next fixture to avoid a potential breach of warranty by delivering the Vessel unclean.

Owners’ case relied on a literal interpretation of clause 86 and the phrase “always at Charterers’ time”, i.e. risk passes to the Charterer when the Vessel remains idle for the defined 25/30 day period. The Tribunal agreed, placing importance on examining the purpose behind the hull-fouling clause and found it was, “quite clear from the language… that the intention of the clause is to assign that risk to the Charterers…” where the Vessel was idle for an extended period.

The High Court agreed with the Tribunal’s conclusions on the language used throughout the charterparty. They noted the repetitive uses of the phrases “at the Charterers’ time” and “loss of time”. It was therefore sensible to deduce that the parties must have intended a distinctive interpretation between those repeated phrases and the unique phrase “always at Charterers’ time” found in the hull-fouling clause. The Honourable judge, Sir Ross Cranston, commented, “to my mind the word ‘always’ must be given effect and cannot have the limited ambit the Charterers have suggested”.

The Tribunal referred to The Nicki R [1984] 2 Lloyd’s LR 186 as precedent that an Owner is not required to demonstrate loss of time for a debt claim regardless of whether the cleaning was performed before or after redelivery. Where a clause clearly allocates liability for the time spent to the Charterer, the Owner need not prove any actual loss of time, as it was considered a claim in debt.

The High Court concluded that the Tribunal had reached a commercially sensible decision. They found it was not desirable to provide Charterers with an incentive to redeliver an uncleaned vessel and evade liability for Owners’ time spent cleaning where there was no workable opportunity for Charterers to have done so prior to redelivery. The words “first workable opportunity” applied to both before and after the charterparty. As this was a one-time trip charter, it was likely that this opportunity would occur after redelivery. Charterers’ appeal failed.

LA Comments

This judgment reminds us that the Courts tend to favour a literal and “obvious” interpretation of charterparty clauses and whilst a commercially sensible interpretation is important; each party may have different views on what is actually deemed the commercial view.

For Owners:

Owners who seek to make a recovery post redelivery for Charterers’ liability should be encouraged to review the precise wording of their clauses to ensure the claim can be advanced in “debt” in addition to their right to bring a claim in damages; and
Owners should not limit themselves to one or the other; indeed it may not be in Owners interest to advance the claim in debt in a rising market.

For Charterers

Charterers are encouraged to discuss their obligations with Owners at the outset and ensure that liability ends upon the vessel’s redelivery. Any wording to the effect that a liability is “always at Charterers’ expense” will increase Charterers’ exposure irrespective of whether a vessel is off hire or redelivered; and
Charterers should make sure a clause truly reflects their intention. In this case, Charterers could have compensated Owners for “loss of time” resulting from cleaning and Owners would have had to have suffered a loss to succeed in the claim, rather than cleaning “always at Charterers’ time”.

This blog is co-written by Phil Bourne, trainee solicitor in our Shipping & Logistics team.