Petrobras v. Kriti Akti

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Note: this judgment has been confirmed by the Court of Appeal in a decision rendered on 20 February 2004. To access the note of the Court of Appeal decision, click here

(1) Petroleo Brasileiro SA v. Kriti Akti Shipping Co SA ; (2) Kriti Akti Shipping Co SA v.
Petroleo Brasileiro SA (The ‘Kriti Akti’).
English Commercial Court: Moore-Bick J: [2003 EWHC 1634 (Comm)]: 9 July 2003
Christopher Hancock QC and Lawrence Akka, instructed by Ince & Co, for Petrobras Brasileiro
Steven Berry QC, instructed by Holman Fenwick & Willan, for the shipowner, Kriti Akti
Time charter: Shelltime 3 form: legitimate last voyage: option to extend charter period: 
whether "period of this charter" (cl.18) includes optional extensions
In determining whether timecharterer’s orders for the final voyage under a Shelltime 3 form of charterparty were legitimate, it was necessary to determine whether the phrase "at the expiry of the period of this charter" in cl. 18 referred only to the basic period of the charter under cl.3 namely 11 months in this case, or whether it included either or both of the following periods: b) the off-hire time (the ‘extension period’) provided under an additional typed cl.50
At arbitration, the Arbitrators concluded that the Court of Appeal decision in The ‘Aspa Maria’ [1976] Lloyd’s Rep 643, compelled them to reject Petrobras’s claim that it could add both 
extensions to complete a final voyage. They held the charterer could include off-hire time but not the cl. 3 option. Moore-Bick J, allowing the timecharterer’s appeal and dismissing the owner’s cross-appeal, held that The ‘Aspa Maria’ did not bind the arbitrators to reject the charterer’s claim, and a last voyage completed within the "final terminal date" (after including both options to extend) was legitimate.

DMC Category Rating: Developed

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

Petrobras chartered the vessel from Kriti Akti Shipping on an amended Shelltime 3 form, for "11 months, 15 days more or less more or less in Charterers’ option [‘MOLTCOP’]" (cl. 3). Under cl.18 the charterer "notwithstanding the provisions of clause 3" could complete an unfinished round voyage on which she was engaged "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 as part of the period at the charterer’s option.

Kriti Akti’s charter service began on 25 May 2000. For the purposes of the appeal, it was assumed that the vessel had been off-hire for a total of 36 days. The unextended cl.3 charter period expired on 24 April 2001, but on 13 March Petrobras gave notice it intended to extend it to 14 June, on the basis of the 15 days’ option, plus 36 days off-hire.

While Kriti Akti was still discharging at Sao Sebastiao on 29 May, and again on 1 June, Petrobras ordered the vessel to take another cargo to New York for discharge there, followed by redelivery. According to Kriti, the charter had already expired and the vessel should be redelivered immediately. The shipowner said it would undertake the New York voyage, but at an increased rate of hire.

Petrobras did not accept that the charter had expired, but Kriti took its vessel back, and Petrobras had to obtain another ship for the New York voyage. It claimed damages from the owner for refusing to comply with "legitimate orders for the vessel’s employment."

The arbitrators "reluctantly" decided they were bound by the Court of Appeal decision in Gulf Shipping Lines Ltd v. Compania Naviera Alanje SA (The ‘Aspa Maria’) [1976] 2 Lloyd’s Rep. 643 that, in this type of timecharter, the "period" referred to in cl.18 was the "basic period", which did not include the 15 days MOLTCOP. Both parties were given leave to appeal to decide the point of law.

The questions at arbitration were: (i) did the words "period of this charter" in cl.18 include any additional period under cl.50? (ii) if so, did the charter, as extended by cl.50, also include the 15 days’tolerance in cl.3? Was The ‘Aspa Maria’ (per Lord Denning MR) binding authority for the proposition that the "period of the charter" excluded the 15 day "option period"? Was this consistent with the Court of Appeal’s previous ruling in The Alma Shipping Corporation of Monrovia v. Mantovani 
(The ‘Dione’)
[1975] 1 Lloyd’s Rep.115, and the later Court of Appeal judgments in Hyundai Merchant Marine Co Ltd v. Gesuri Chartering Co Ltd (The ‘Peonia’) [1991] 1 Lloyd’s Rep.100 and Chiswell Shipping Ltd and Liberian Jaguar Transport Inc v. National Iranian Tanker Co. ( The ‘World Symphony’and ‘World Renown’) [1991] 2 Lloyd’s Rep.251?

On appeal, the charterer contended that it could add both extension period and the option period to the11 months’ timecharter. It maintained the arbitrators were not bound by The ‘Aspa Maria’ and should 
have followed their preference, which was to include both periods. The shipowner submitted that the "period of the charter" meant either just the "basic" period, or "basic" plus "extension" period, but in either case excluding the 15 days "option"period, and that The ‘Aspa Maria’ was binding authority for this construction.

Moore-Bick J said 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". The 
shipowner claimed the cl.3 option period was merely a "margin of tolerance" which was not part of the period for which the vessel was at the charterer’s disposal: he had no absolute right to use it, it was only to
protect him if unforeseen events prevented redelivery at the end of the basic period.

It would follow from this argument, said the judge, that the charterer was not entitled to order the ship on a last voyage that was expected to be completed after the basic period expired, but that if a voyage 
unexpectedly finished later (or earlier) than the end of the basic period, the charterer was protected by the 15 days’ tolerance.

In deciding whether the arbitrators were bound to follow The ‘Aspa Maria’, he considered Lord Denning’searlier judgment in The ‘Dione’ and the more recent appeal case of The ‘Peonia’ (per Bingham LJ).

In The ‘Dione’, Lord Denning said that although the law will imply a "reasonable margin" in the absence of any express margin, it was open to the parties to agree a margin, such as "20 days more or less". In such a case, the law would treat this agreement as defining the appropriate margin and would not imply any additional tolerance - which in the case of the ‘Dione’ meant the charterer was liable for an 8 day overrun beyond the option period.

When the issue came again before the Court of Appeal in 1991 in The ‘Peonia’, Bingham LJ said that though there were inconsistencies in Lord Denning’s ‘Dione’ judgment, the important point was that "he treated the option period as part of the charter period for the purposes of determining whether the charterer’s orders for a last voyage were legitimate or not." Lord Justice Bingham interpreted "charter period" as referring to "the stated period plus or minus any permitted margin or allowance, express or implied." In the case of a "legitimate last voyage" (defined as "a voyage which it is reasonably expected will be completed by the end of the charter period") the shipowner must obey the charterer’s directions, he said.

The appeal judges in The ‘Peonia’ confirmed that where a margin of tolerance had been expressly agreed, the law would not imply any further margin, and held the contractual period of the charter would end at the expiry of the period agreed by the parties - the "final terminal date". The charterer was in breach of contract if he failed to deliver by that date, and was therefore not entitled to send the vessel on a voyage which could not reasonably be expected to be completed by that date.

Moore-Bick J said the Peonia reasoning showed that "where the parties have expressly defined the period for which the vessel is to be at the charterer’s disposal" - whether by a MOLTCOP period or in some other way - the charterer was entitled to the vessel’s services for the whole of that period, and to send it on a voyage which should reasonably be completed within the "option period", even if not within the "basic period". However failure to redeliver within the "final terminal date" was a breach of contract entitling the shipowner to damages. This approach was adopted in the case of The ‘World Symphony’ and ‘World Renown’.

Applying these authorities, the judge said there was nothing odd in the parties agreeing to let the charterer take advantage of both the off-hire extension period and the 15 days option period, on the basis that the extension period "is designed to restore a period of active service" that the charterer would otherwise lose, while "adding the option period is simply to enable him to make use of the vessel’s services for the whole of the period originally contemplated". Moore-Bick J did not accept that the disputed wording in cl.18 applied only to the basic period. It "naturally directs the reader to the point at which the charter finally runs out" - the "final terminal date", to quote The ‘Peonia’.

As for The ‘Aspa Maria’, he said that Lord Denning, in giving his judgment, had clearly had his ‘Dione’ judgment in mind, and the judgments were not inconsistent. In that case, the vessel was chartered for "6 months 30 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 court held that the maximum duration of the charter would be 12 months 30 days, not (as charterers had argued) 12 months and 60 days.

Moore-Bick J. did not take Lord Denning to have been saying, in The ‘Aspa Maria’, that the option period "did not form part of the charter period for any purposes". He was emphasising the importance of the parties’ own agreement to a basic 6 month period, to which the disputed extension applied, and so did not, in the particular circumstances of the case, give rise to a "true option". He therefore held that he was not bound by The ‘Aspa Maria’ to reject Petrobras’s arguments.

Even if his interpretation of Lord Denning’s judgment was wrong, he added, the expression "at the expiry of the period of this charter", in the Shelltime form cl.18, occurred in a different context from that under consideration in The ‘Aspa Maria’. He further held that for this reason that case did not constrain him to give the expression a meaning which it did not naturally bear. This conclusion was further supported by the fact that The ‘World Symphony’ decision was on the basis that the expression referred to the "final terminal date".


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