Kriti Akti Shipping Co SA v. Petroleo Brasiliero SA (The ‘KRITI AKTI’)
English Court of Appeal: Brooke and Mance LLJ, Park J . EWCA Civ 116: 20
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  1 Lloyd’s Rep 115, The Peonia  1
Lloyd’s Rep100, and The World Symphony and World Renown  2 Lloyd’s
Rep 251 applied: The Aspa Maria  2 Lloyd’s Rep 643 distinguished.
DMC Category Rating – Developed
Case note contributed by Ann
Correspondent for Fairplay International Shipping Weekly and a contributor to
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
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
 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
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  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)