A Greek VLCC owner has won a notable victory in the UK’s supreme court.
The court has overturned a ruling in favour of charterer Petrobras and found for the owner of the 306,000-dwt Kos (built 2001) in a long running dispute over payment for charter hire.
But in May 2008 Petrobras failed to make a required payment of hire with the consequence that the ship was withdrawn in June of that year although the failure to pay did not amount to a repudiatory breach of contract.
At the time of the withdrawal the Kos was loading cargo at Angra dos Reis in Brazil so there was a delay of 2.64 days while the ship was discharged.
The tanker owner claimed on various grounds for the daily hire of the vessel at the market rate and bunkers consumed over the days in question with a major legal battle ensuing.
The shipowner won in a London high court but the judgment was overturned on appeal.
But there has now been a definitive final ruling in favour of ENE Kos 1, a single ship company that is the legal owner of the VLCC.
The five supreme court judges delivered a detailed ruling on the Shelltime 3 charterparty and unanimously agreed the appeal should be allowed although there was lack of uniformity about the route to this finding.
The commercial background to the dispute was that charter rates soared between the deal being agreed and the withdrawal.
The daily rate Petrobras was paying is not known but rates were as low as $40,000 a day in June 2006 and as high as $159,000 a day in June 2008. About $450,000 was at stake when the dispute began.
“It is axiomatic that a withdrawal clause operates at the election of owners, and not automatically. Two main consequences follow from this. The first is that owners will not exercise their right of withdrawal unless it is in their commercial interest to do so. Usually, this will be because market rates of hire have risen,” noted supreme court judge Lord Sumption.
But the judge declared “any failure on the part of the charterers to pay hire when it falls due will not of itself entitle the owners to damages representing the loss of the bargain or the expenses of termination simply because the owners respond by withdrawing the vessel.”
Lord Sumpton said this was because non-payment does not itself destroy the bargain unless it is a repudiation which the shipowner has accepted.
“The fact that rather than perform the contract the owners found it more advantageous to exercise an express right of termination is morally and legally neutral,” said the judge.
“There are no standards by which the owners’ reasons may be judged, other than those to be found in the contract. There is no legal policy specific to termination rights restricting their availability or the consequences of their exercise more narrowly than does the language of the contract or the general law,” he added.
Click on the document in the related media column to the right to read this and earlier judgments in full.
