Kriti Akti v. Petrobras CofA

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Kriti Akti Shipping Co SA v. Petroleo Brasiliero SA (The ‘KRITI AKTI’)

English Court of Appeal: Brooke and Mance LLJ, Park J .[2004] EWCA Civ 116: 20 February 2004
Steven Berry QC, instructed by Holman Fenwick & Willan, for the appellant shipowner, Kriti Akti
Christopher Hancock QC and Lawrence Akka, instructed by Ince & Co, for the respondent timecharterer, Petroleo Brasiliero
Time charter: amended Shelltime 3 form: option to extend charter period: legitimate last voyage: whether "period of this charter" (cl.18) includes optional extensions and margins of tolerance

In this case the Court of Appeal, upholding the decision of Moore-Bick J. in the Commercial Court, held that, for the purposes of giving legitimate orders for a final voyage under a Shelltime 3 form of charterparty, the "period of this charter" in the Final Voyage clause (cl.18) included both a) off-hire periods (by virtue of a specific additional clause in the charterparty) and b) the "option period" of 15 days more or less in clause 3 of the charterparty.
A legitimate last order could be given at any time within this period, regardless when the final voyage was likely to finish. The Aspa Maria*(see note below) did not apply to this type of charter. The Dione [1975] 1 Lloyd’s Rep 115, The Peonia [1991] 1 Lloyd’s Rep100, and The World Symphony and World Renown [1991] 2 Lloyd’s Rep 251 applied: The Aspa Maria [1976] 2 Lloyd’s Rep 643 distinguished.

DMC Category Rating – Developed

Case note contributed by Ann Moore, Law Correspondent for Fairplay International Shipping Weekly and a contributor to this website

Petroleo Brasiliero chartered the Kriti Akti on an amended Shelltime 3 form, for "11 months, 15 days more or less in Charterers’ option" (‘MOLTCOP’), from May 25th 2000, these words being added as a typed amendment to cl.3. Under the standard cl.18, the charterer could ("notwithstanding the provisions of clause 3") complete an unfinished round voyage "at the expiry of the period of this charter", with the use of the vessel "at the same rate and conditions" for completion and redelivery "as provided by this charter". An added cl.50 provided that time lost while off-hire "shall count as part of the charter period", and could be used to extend the hire period at the charterer’s option.

During the charter Kriti Akti was off-hire on several occasions. For the purpose of the argument the courts accepted the charterer’s estimate of 36 days. The basic 11 months expired on April 24th 2001, but Petroleo had previously given notice of its intention to extend the charter to June 14th, on the basis of 36 days off-hire, plus15 days MOLTCOP.

On May 29th, while the vessel was discharging at Saó Sebastiaó, Petroleo gave instructions for a voyage to New York, later amended to be by way of Santos, with redelivery at New York. On each occasion the owner objected, saying the charter had already expired, and paid for at an increased rate of hire. demanding either immediate redelivery after discharge at Saó Sebastiaó, or that the New York voyage should be paid for at an increased rate of hire. Petroleo rejected both propositions, insisting it was acting within the charter terms. Kriti took the vessel back at Santos, and Petroleo had to obtain another ship to take the cargo to New York.

At arbitration Petroleo claimed damages from Kriti Akti Shipping for refusing to comply with "legitimate orders for the vessel’s employment". As the proposed voyage to New York could not have been completed until "well after" 14 June, the courts had to decide if the orders to go to New York were for a "legitimate last voyage" within the terms of cl.18.This depended on the meaning of the charter "period" named in the clause, and whether this could include both the cl.50 off-hire option and the cl.3 tolerance of "15 days more or less".

The Arbitrators decided that the "period" mentioned in cl.18 included the optional off-hire extension but "reluctantly" concluded that The Aspa Maria compelled them to exclude from that period the 15 days tolerance. This supported the owner’s contention that the New York voyage orders were issued after the charter had ended. The Commercial Court was asked to rule on these questions.

The questions of law were stated as: (i) whether the "period of this charter" in cl.18 of Shelltime 3 included any additional period for which charterers elected to extend the charter (in this case under the added cl.50); (ii) whether, if so, the period of the charter as so extended also included (for the purposes of cl.18) a further 15 days at charterer’s option under amended cl.3. Did The Aspa Maria compel a negative answer to the second question?

Moore-Bick J explained that the "apparently simple question" of the wording of cl.18 concealed broader questions as to the charterer’s right to employ the vessel, and what is, or is not, a "legitimate last voyage". In The Dione (pre-dating The Aspa Maria) Lord Denning defined this as "a voyage which it is reasonably expected will be completed by the end of the charter period". So even if the New York voyage was ordered within the "period of this charter", was it "legitimate" under cl.18 in view of the fact it could not, on anyone’s reckoning, have been completed before the final redelivery date? In Moore-Bick J found for the charterer on both counts, but gave the shipowner leave to appeal.

Kriti’s case was that in deciding whether orders for a last voyage were ‘legitimate’ under cl.18, "the period of the charter" meant either the "basic" period, or "basic" plus the off-hire days in cl.50, but in no circumstances could it include the further 15 days margin under cl.3. It claimed The Aspa Maria was binding authority for this construction. Petroleo submitted the judge was right to add both extension periods to the 11 months’ timecharter, The Aspa Maria was not binding authority, and the arbitrators should have followed their inclination to allow both periods.

Shelltime 3 clause 18
Giving a judgment with which Brooke LJ and Park J agreed, Lord Justice Mance said the charterer’s claim depended on the correct construction of cl.18, according to the principles laid down in The World Symphony and World Renown [1991] 2 Lloyd’s Rep 251, in order to decide whether the instructions to go to New York were for a "legitimate last voyage". The 36-day off-hire period and 15-day charterer’s option had to be added to the basic 11-month period to arrive at the total period within which the charterer could exercise its right, under cl.18, to send the vessel on a final voyage which was unlikely to end within that total period.

In The Dione (1975) Lord Denning had said that the courts would imply a "reasonable" margin of tolerance if none had been agreed, because no-one could calculate the exact day on which a voyage would end. The parties could either agree to no such allowance for maritime exigencies, or they could fix what it should be. In that case he had defined the "charter period" as "the stated period plus or minus any permitted margin or allowance, express or implied". If the charterer sent the vessel on a legitimate last voyage, the shipowner must obey the directions, but if he sent it on an "illegitimate" voyage - which it could not expect to complete within the charter period - the owner was entitled to refuse and to withdraw the vessel on the terminal date. Mance LJ remarked that this "apparent inconsistency" between The Dione and The Aspa Maria was not of direct relevance in this case, "but it illustrates why Lord Denning’s propositions cannot be approached like statute."

In The Peonia in 1991 Bingham LJ held that a provision that charterers had "a further option to complete last voyage within trading limits" gave the right to complete a legitimate last voyage " free of any liability in damages in respect of the period between the final terminal date and a later redelivery date" (except for some other breach of the charter). Turning to the question of the legitimacy of last voyage directions given during a MOLTCOP margin period, Mance LJ said not all margins had the same effect, and the particular charter’s wording must be construed. In this case he held the natural meaning of the MOLTCOP provision was "to entitle charterers to the full commercial use of the vessel for a period of between 11 months plus or minus 15 days." He saw no reason, apart from cl.18 and authority, why the charterer should not be able to give voyage directions at any time up to the final terminal date.

As interpreted in The World Symphony, cl.18 exposed the owner to a final round voyage of no fixed length, "which it is clear from the outset will extend very considerably beyond the final terminal date" - whether or not any MOLTCOP margin was included. Applying his interpretation of cl.3, Mance LJ ruled that "a voyage within clause 18 may be commenced at any time" during the charter period, up to its final terminal date - in this case 11 months plus off-hire days plus 15 days.

The Aspa Maria
Lord Denning had stressed the difference between an option to extend the charter, and a "margin of tolerance" in recognition of the uncertainties of carriage by sea. A MOLTCOP provision "was not a true option," he had said, but merely an express agreement for a period of tolerance in place of one which might otherwise have been implied by a court.

Kriti Akti claimed this was authority for the proposition that when a timecharter ordered a last voyage, he must aim for a completion date which coincided with the last day of the basic charter period "ignoring any margin", and that the MOLTCOP tolerance only kicked in "if maritime exigencies materialised during such a last voyage". In any event The Aspa Maria showed the margin could not be counted as part of the "basic period", and last voyage orders could not be given during the "margin period".

Lord Justice Mance rejected this argument, as reading more into Lord Denning’s words "than they would bear". Lord Denning was concerned with the rationale of the margin period, in essence saying that it was a tolerance in respect of the "date the charterer can get the ship redelivered". Mance LJ pointed out that cl.18 in Shelltime 3 was not similar to the extension clause in The Aspa Maria, which was "a period clause of the same character as the basic period clause" with the effect of extending the period and giving a new final date for delivery.

Mance LJ held that cl.18 takes the charter period as its starting point. "It applies whenever the vessel is on a voyage at the expiry of that period", and its effect is to give the charterer the further use of the vessel on a "hybrid basis" - "for a round voyage ending whenever the vessel’s round voyage happens to end". Any contractual clause must be taken in context: "great caution" was needed in "treating as binding precedent brief statements made in the context of significantly different contractual circumstances".

The appeal judges agreed that The Aspa Maria did not bind them to reach any other conclusion than the one expressed by Mance LJ , based on the "ordinary language and proper construction" of the present charter. The court held Moore-Bick J was correct in dismissing the owner’s appeal from arbitrators on the first question (the off-hire extension) and in allowing the charterer’s appeal on the second question (the MOLTCOP period), which the arbitrators would have decided in the charterer’s favour if they had not felt bound by The Aspa Maria to accept the shipowner’s construction.

The appeal was unanimously dismissed with costs. Kriti Akti Shipping was granted leave to appeal to the House of Lords.

It is important to note that this judgment relates specifically to the Shelltime 3 form. A recent New York arbitration on last voyage orders highlighted the different effect of the "final voyage" clause in the Shelltime 4 form. Clause 18 of Shelltime 3 includes the words: "Notwithstanding the provisions of Clause 3..." in its charter duration provision, but there is no such wording in cl.19 of Shelltime 4. The shipowner in that case successfully claimed that a last voyage order was illegitimate under the vessel’s Shelltime 4 timecharter because at the time instructions were given it could not have been reasonably expected that the voyage would be completed by the final redelivery date.

*In The Aspa Maria [1976] 2 Lloyd’s Rep.643, the vessel was chartered for "6 months, thirty days more or less at charterers’option, but a further clause provided that the charterers had the option of continuing the charter for a further period of "6 months, 30 days more or less at charterers’ option". The question for the court was, if the option was exercised, was the maximum duration of the charter 12 months plus 30 days or 12 months plus 60 days? The court held that the maximum duration was 12 months plus 30 days, on the grounds that the parties could not have intended to allow for two tolerance periods in respect of one redelivery.(With acknowledgements to the March 2004 Bulletin of the DLA Group, page 9)


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