Lansat Shipping Co Ltd v Glencore Grain BV [2009] EWHC 551 (Comm)

[2009] EWHC 551 (Comm)Case No 2008 Folio 525
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 25/03/2009
Before
THE HON MR JUSTICE BLAIR
Between
LANSAT SHIPPING CO LTDAppellantGLENCORE GRAIN BVRespondent
Mr Michael Davey (instructed by Ince & Co) for AppellantMr Simon Birt (instructed by Birketts LLP) for RespondentHearing Hearing date: 23rd February 2009
Judgment
[1]This is an appeal against an arbitration award made on 7 May 2008. It is brought under s. 69 Arbitration Act 1996, permission to appeal having been granted by Andrew Smith J on 1 October 2008 under s. 69(3)(c)(ii) on the basis that the question raised was one of general public importance. The award concerned a preliminary issue in connection with a vessel’s last voyage before redelivery. The issue is whether a clause in the time charter which adjusted the hire to the market rate for a thirty day period before the time for redelivery was a penalty (and therefore unenforceable). The London Maritime Arbitrators Association tribunal decided this question in the affirmative, and issued an interim declaratory award to that effect.[2]The facts are as follows. The appellant Owners let their vessel “Paragon” to the respondent Charterers on a time charter dated 23 November 2006. By the charter (which was on the New York Produce Exchange form with additions and amendments), the Charterers agreed to hire the vessel “from the time of delivery, for about minimum 3 to about 5 months (about means +/- 15 days”. The vessel was delivered on 29 November 2006. Allowing for the plus 15 days margin therefore, the last possible day for lawful redelivery was 14 May 2007. In fact, the last voyage under the charter took 77 days, and it is common ground that the vessel was redelivered on 20 May 2007, which was 6.166 days late.[3]The Charterers have paid hire at the charter rate for the duration of the charter up until the last redelivery date on 14 May 2007, and at the market rate for the six days the vessel was overdue. But as the tribunal put it, this is no ordinary claim for damages for late redelivery. In reliance on the terms of the charter, the Owners also claim hire based on the market rate for thirty days before the latest date for redelivery. The correct market rate is not agreed, but at this time, rates were rising, and to give some idea of the ambit of the dispute, the additional claim is at a market rate of US$ 46,083.82 per day as opposed to the charter rate of US$29,500 per day. On this basis, the Owners’ claim amounts to US$471,603.32 over and above what the Charterers have already paid.[4]The basis for the claim in respect of the thirty day period is clause 101 of the charter, which provided as follows:
“The Charterers hereby undertake the obligation/responsibility to make thorough investigations and every arrangement in order to ensure that the last voyage of this Charter will in no way exceed the maximum period under this Charter Party. If, however, Charterers fail to comply with this obligation and the last voyage will exceed the maximum period, should the market rise above the Charter Party rate in the meantime, it is hereby agreed that the charter hire will be adjusted to reflect the prevailing market level from the 30th day prior to the maximum period [d]ate until actual redelivery of the vessel to the Owners.”
[5]Various issues arise in the reference, including whether there was a breach of clause 101, whether the second sentence of the clause is a penalty clause and therefore unenforceable, and (if there has been a breach and if the clause is enforceable), the proper approach to ascertaining the market rate. As I have indicated, the penalty issue was taken as a preliminary issue, and it is this which is the subject of the Award. Nothing in this judgment impinges on the other questions which are yet to be decided. The tribunal having held that the second sentence of clause 101 is a penalty, the Owners ask the court to allow the appeal and to vary the award so as to declare that clause 101 is enforceable.

An illegitimate last voyage

[6]To understand the arguments, it is necessary to appreciate the concept of the “illegitimate last voyage” and its interface with the law of redelivery. The jurisprudence was explained by Rix LJ in the Court of Appeal in The Achilleas [2007] 2 Lloyd’s Rep 555, 558-565. In the case of a time charter, the charterer is contractually bound to redeliver the vessel to the owner at the end of the agreed period. However uncertainties of various kinds mean that this not necessarily a straightforward exercise. The commercial pressures operating on the parties as the time for redelivery approaches are explained in a passage from the judgment of Lord Mustill in The Gregos [1995] 1 Lloyd’s Rep 1 at 4 as follows:
“My Lords, in merchant shipping time is money. A cargo ship is expensive to finance and expensive to run. The shipowner must keep it earning with the minimum of gaps between employments. Time is also important for the charterer, because arrangements must be made for the shipment and receipt of the cargo, or for the performance of obligations under subcontracts. These demands encourage the planning and performance of voyages to the tightest of margins. Yet even today ships do not run precisely to time. The most prudent schedule may be disrupted by regular hazards such as adverse weather or delays in port happening in an unexpected manner or degree, or by the intervention of wholly adventitious events. Where the charterparty is for a period of time rather than a voyage, and the remuneration is calculated according to the time used rather than the service performed, the risk of delay is primarily on the charterer. For the shipowner, so long as he commits no breach and nothing puts the ship off-hire, his right to remuneration is unaffected by a disturbance of the charterer’s plans. It is for the latter to choose between cautious planning, which may leave gaps between employments, and bolder scheduling with the risk of setting aims which cannot be realised in practice. This distribution of risk holds good during for most of the chartered service. As the time for redelivery approaches things become more complicated. (The word “redelivery” is inaccurate, but it is convenient, and I will use it). If the market is rising, the charterer wants to have the use of the vessel at the chartered rate for as long as possible. Conversely, the shipowner must think ahead to the next employment, and if as is common he has made a forward fixture he will be in difficulties if the vessel is retained by the charterer longer than had been foreseen. This conflict of interest becomes particularly acute when there is time left for only one more voyage before the expiry of the charter, and disputes may arise if the charterer orders the ship to perform a service which the shipowner believes will extend beyond the date fixed for redelivery.”
[7]As Bingham LJ explained in The Peonia [1991] 1 Lloyd’s Rep 100 at 107-108, to meet the various factual situations that can arise in this type of case, the law draws a distinction between a “legitimate last voyage” and an “illegitimate last voyage”. In the former case, the charterer gives orders for the employment of the vessel which can reasonably be expected to be performed by the time for redelivery (though The Peonia established that the charterer is nevertheless liable in damages if the vessel is not redelivered within the contractual period). In the case of an “illegitimate last voyage”:
“…the charterer gives orders for the employment of the vessel which cannot reasonably be expected to be performed by the final terminal date [that is, the date by which the charterer is contractually obliged to redeliver the vessel]. He is therefore seeking to avail himself of the services of the vessel at a time when the owner had never agreed to render such services. It is accordingly an order which the charterer is not entitled to give … and in giving it the charterer commits a breach of contract (perhaps a repudiatory breach but that we need not decide). The owner need not comply with such an order because he never agreed to do so. Alternatively, he may comply with the order although not bound to do so: if he does comply, he is entitled to payment of hire at the charterparty rate until redelivery of the vessel and (provided he does not waive the charterer’s breach) to damages (being the difference between the charter rate and the market rate if the market rate is higher than the charter rate) for the period between the final terminal date and redelivery. In the further alternative, if (which we do not decide) the charterer’s breach is repudiatory, the owner may accept the repudiation, treat the charter as at an end and claim damages. … the charterer’s order is illegitimate because he was not contractually entitled to give it, and the voyage (whether performed or not) is stigmatised as illegitimate because it is one the charterer could not under the charter-party lawfully require the owner to perform.”
[8]Final voyage orders are said to be “illegitimate” therefore if, at the start of the last voyage, it cannot reasonably be expected that they will allow redelivery before the end of the maximum charter period. As appears from the above passage from Bingham LJ’s judgment, though a breach of contract, the breach is not necessarily repudiatory (the learned editors of Time Charters, 6th edn, para 4.49, describe the obligation to redeliver the ship no later than the end of the charter period as an intermediate term). The owners can choose to perform such an order, but are not bound to do so. If however the charterer persists in the order then (whether or not it constituted a repudiation when first given) the owners can treat such persistence as a repudiatory breach and the contract as ended (see The Gregos, ibid, at pages 9-10).[9]Whether the contract is ended or not, the shipowner is entitled to damages if any have been suffered. The applicable principles were stated by Lord Denning MR in The Dione [1975] 1 Lloyd's Rep 115 at 118 as follows:
“If the charterer sends the vessel on an illegitimate last voyage—that is, a voyage which it cannot be expected to complete within the charter period, then the shipowner is entitled to refuse that direction and call for another direction for a legitimate last voyage. If the charterer refuses to give it, the shipowner can accept his conduct as a breach going to the root of the contract, fix a fresh charter for the vessel, and sue for damages. If the shipowner accepts the direction and goes on the illegitimate last voyage, he is entitled to be paid—for the excess period—at the current market rate, and not at the charter rate … The hire will be payable at the charter rate up to the end of the charter period, and at the current market rate for the excess period thereafter.”
[10]I should make it plain that whether the last voyage in the present case was an illegitimate last voyage is a question not yet determined by the arbitrators. But factual questions aside, it is at or about this point in the analysis that the consensus between the parties as to the applicable principles ceases. The passage just cited from The Dione is to the effect that if the shipowner accepts the order and goes on the illegitimate last voyage, hire will be payable at the charter rate up to the end of the charter period, and at the current market rate for the excess period thereafter.[11]This principle was applied in The Black Falcon [1991] 1 Lloyd’s Rep 77. In that case, the last date for redelivery was 31 March 1988. In fact the vessel was redelivered on 23 May. The arbitrators found that the vessel would have been redelivered on 15 March had it not been sent on an illegitimate last voyage. They therefore awarded damages at the market rate from 16 March. Steyn J reversed this on the basis that the owners’ “expectation” was to receive the charter rate, and not the market rate, up to the last permissible date for redelivery which (taking account of the optional tolerance of 15 days more or less) was 14 April. The owners therefore only recovered the market rate from 14 April onwards, i.e. for the “overrun” period.[12]At pages 80-81, Steyn J discusses the owners’ “expectation interest” in such circumstances, saying that:
“…where the owners undertook the illegitimate last voyage without waiving their rights to claim damages, the charterers’ obligation is to pay the charter rate until the last permissible date for redelivery, and thereafter pay the market rate until the actual redelivery. … In awarding compensation for breach of contract various interests may have to be considered, such as expectation, reliance and restitution. Here the relevant interest is the owners’ expectation interest. That expectation was always to receive no more than the charter-party rate until April 14 if the charterers availed themselves of the optional tolerance. To award the owners a higher market rate for the period up to April 14 is to confer on them an unwarranted windfall.”
[13]In the present case, Mr Michael Davey, counsel for the Owners, submits that this approach is wrong in principle because it does not place owners in the same position, with respect to damages, as if the charterers had complied with their contractual obligations. If the charterers had done so they would have redelivered on 15 March and the owner would have been able to go out into the market from that date. Sending the vessel on an illegitimate last voyage deprived the owner of the opportunity to go out into the market earlier than the end of the maximum charter period. It is submitted that there is no reason why an owner should not expect redelivery before the maximum period of the charter. In The Black Falcon itself, Mr Davey points out, as in many charters, the charter period was “15 days more or less in charterers’ option”. It was clearly contemplated that redelivery could be earlier than the latest permitted date. Owners expect the vessel to be redelivered, he submits, within the charter period at the end of last legitimate voyage.[14]Like the present case, The Black Falcon was one in which the owners complied with the order for the last voyage. As regards damages, it is clear that the rationale of the decision is that the owners of a vessel under time charter cannot expect their vessel back before the last permissible date for redelivery, because the charterers are under no obligation to redeliver it before then. Despite Mr Davey’s submissions, that appears to me to be a sound approach. But in any event, as the Charterers point out, the same approach as to damages was stated by Bingham LJ in The Peonia in the passage I have cited above, as well in The Dione. Steyn J’s conclusion was cited by Rix LJ without disapproval in The Achilleas, ibid, at 562. On the further appeal in that case, Lord Hoffmann stated the principle in the same way: “If the orders are accepted and the last voyage overruns, the owner is entitled to be paid for the overrun at the market rate” ([2009] 1 AC 61 at 71B-C). It is also cited without apparent query in Time Charters, ibid,at para 4.54, and I regard the decision as binding on me.

The tribunal’s award

[15]The tribunal’s award was the only document that I was referred to other than the charter itself. (As to the material which the court is entitled to take into account on a s. 69 appeal see Kershaw Mechanical Services Ltd v Kendrick Construction Ltd [2006] 4 All ER, Jackson J.) The award notes the expert evidence adduced to the effect that a vessel such as the “Paragon” would lift about six cargoes a year, with an average voyage duration of about 60 days, or a combination of voyages between 40 and 80 days, although there are other trades of a much shorter duration of between 25 to 30 days (Award paragraphs 6-7). In justification of clause 101, the Owners relied on this evidence, submitting that the period of 30 days referred to in the clause is not a figure picked at random, but corresponds to half the length of an average voyage for this type of vessel.[16]Nevertheless, having considered the authorities as to penalties, the tribunal concluded that clause 101 did not contain a genuine pre-estimate of damage, and that the second sentence was penal and therefore unenforceable. The heart of the Tribunal’s reasoning is as follows. Clause 101, it considered, emphasises the Charterers’ obligation in relation to redelivery. To put it another way, “if the Charterers do not make very serious efforts to comply with their obligations to redeliver the vessel on time, they will be liable to pay the market rate of hire commencing 30 days before the contractual date for redelivery until actual redelivery. To our minds, this looks very much like an attempt to deter the Charterers from breaching their obligation to redeliver the vessel in time. It stresses the efforts that the Charterers are to go to ensure that the last voyage will ‘in no way’ exceed the maximum period and then provides for payment of what, at first blush, appears to be an arbitrary sum by way of additional hire, should the Charterers fail to perform the obligations in question. Although it might be said that the clause contains a slightly different obligation from the one merely to redeliver within the contractual period, we accept the Charterers’ argument that the natural or direct loss is the same even if the obligations are different, i.e. whether the obligation is characterised as a breach of the obligation not to deliver late, or a breach of an obligation not to order the vessel on an illegitimate last voyage. In other words, the Owners would lose the opportunity for the vessel to earn the market rate of hire from the last contractual time for redelivery until actual redelivery” (Award paragraph 20).

The law as to penalties

[17]The law as to penalties is well settled, and was not in dispute before me. To take some passages from the leading authority, “The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage…. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contact, judged as at the time of the making of the contract, not as at the time of breach. ... To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. … It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach” (Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86-87, per Lord Dunedin).[18]Some more recent formulations have tended to avoid the phrase “in terrorem”, but the underlying principle remains the same: “…whether a provision is to be treated as a penalty is a matter of construction to be resolved by asking whether at the time the contract was entered into the predominant contractual function of the provision was to deter a party from breaking the contract or to compensate the innocent party for breach. That the contractual function is deterrent rather than compensatory can be deduced by comparing the amount that would be payable on breach with the loss that might be sustained if breach occurred.” (Lordsvale Finance plc v Bank of Zambia [1996] QB 752 at 762H, per Colman J). This was described by Mance LJ as “a more accessible paraphrase of the concept of penalty” in Cine Bes Filmcilik v United International Pictures [2003] EWCA Civ 1669 at [13]. See also The Office of Fair Trading v Abbey National Plc [2008] EWHC 875 (Comm) at [295] and following, per Andrew Smith J.[19]However “the Court has to be careful not to set too stringent a standard and bear in mind that what the parties have agreed should normally be upheld. Any other approach will lead to undesirable uncertainty especially in commercial contracts” (Philips Hong Kong Ltd v The AG of Hong Kong (1993) 61 BLR 49 at 59, per Lord Woolf). The importance of certainty was emphasised by Arden LJ in Murray v Leisureplay plc [2005] IRLR 946 at [48], and the predisposition towards upholding the terms of commercial contract mentioned in Alfred McAlpine Capital Projects Limited v Tilebox Ltd (2005) BLR 271 at [48] by Jackson J. On the other hand, the circumspection that the courts show before striking down a clause when the parties are of equal bargaining power does not displace the rule that the clause must be a genuine pre-estimate of damage: Jeancharm Ltd v Barnet Football Club Ltd [2003] EWCA Civ 58 at [15], per Jacob J, cited in General Trading Company v Richmond Corporation Ltd [2008] 2 Lloyds Rep 475 at 498, per Beatson J.

The parties’ contentions

[20]In broad terms, the parties’ contentions were as follows. The Owners argued that clause 101 was concerned with the breach of contract inherent in an order for an illegitimate last voyage, not the breach which happens on late redelivery. By confusing the two, they submit, the tribunal concluded that the loss suffered was limited to the 6 day period between when the vessel should have been redelivered under the charter, and when it was actually redelivered. The Owners’ loss, it is submitted, was much more extensive, consisting of the period from when the illegitimate last order was given. In respect of that loss, clause 101 was a genuine pre-estimate of damage, and should accordingly have been upheld.[21]The Charterers emphasise a concession by the Owners that if the clause had simply provided for an extra 30 days hire to be paid in the event that the vessel was redelivered late, then that would clearly be a penalty. They contend that as a matter of construction, clause 101 does provide a remedy for late redelivery, and is not compensation for having complied with an illegitimate last order. Alternatively, they submit that in so far as it does so, the position is the same. The Owners do not have to accept an illegitimate last order, but if they do, the result is the same, namely the late redelivery of the vessel, and the loss is the same. In those circumstances, it is submitted that clause 101 does not provide a genuine pre-estimate of damage, and that the tribunal reached the correct conclusion.[22]Before analysing these arguments, I should deal with a general proposition made by the Owners. It is submitted that when considering whether a clause is a penalty, the correct comparison is with the losses that may be suffered not with the damages which may be recovered. There is, in my view, room for confusion in this proposition. It is correct that a liquidated damages clause is a pre-estimate of damage, and it does not follow from the mere fact that the actual loss sustained is less than the estimate that the clause is penal. As Lord Woolf pointed out in Philips v A-G of Hong Kong, ibid, at 58-59:
“Except possibly in the case of situations where one of the parties to the contract is able to dominate the other as to the choice of the terms of a contract, it will normally be insufficient to establish that a provision is objectionably penal to identify situations where the application of the provision could result in a larger sum being recovered by the injured party than his actual loss. Even in such situations so long as the sum payable in the event of non-compliance with the contract is not extravagant, having regard to the range of losses that it could reasonably be anticipated it would have to cover at the time the contract was made, it can still be a genuine pre-estimate of the loss that would be suffered and so a perfectly valid liquidated damages provision.”
So although the Owners are correct to submit that the comparison is to be made with the upper end of the range of the loss which may be suffered, the pre-estimate must nevertheless be a genuine pre-estimate of recoverable loss for the breach of contract in question. The fact that in broad terms the potential loss of the injured party may be considered different and greater is not in point if such loss is irrecoverable in law.

Discussion and conclusions

[23]I now come to the specific criticisms made by the Owners of the tribunal’s reasoning. The first has to do with the question of loss. It will be recalled that by clause 101, the Charterers undertake the “obligation/responsibility to make thorough investigations and every arrangement in order to ensure that the last voyage of this Charter will in no way exceed the maximum period under this Charter Party”. The Owners sought to justify the 30 day adjustment in the rate of charter hire in the event of failure to comply with this obligation by reference to the expert evidence to the effect that 60 days would be the average length of a voyage of a vessel like the “Paragon”. Thirty days, it was argued, constituted a sensible commercial agreement reflecting a middle position between the extremes of what the Owners might have lost as a result of the Charterers’ breach.[24]In rejecting this contention, the tribunal explained its view that this loss would not be loss resulting from failure to comply with clause 101: “Failure to comply with the obligation there referred to would simply mean that the vessel was redelivered beyond the maximum contractual redelivery date. The loss to which the Owners refer is, to our minds, something quite different. It assumes that the Charterers give an illegitimate order for the last voyage. This is then refused by the Owners, but the Charterers persist in that order so that they put themselves in repudiatory breach of the Charterparty. The Owners could then accept that repudiatory breach. However, it is not the consequence of the Charterers giving orders for an illegitimate last voyage that the Owners would be entitled to have their vessel back and to trade her in the market: they could only achieve that if the Charterers repudiated the charter party. If the Charterers had given orders for an illegitimate last voyage, the Owners could have refused those orders and it would then be for the Charterers to give lawful orders for a voyage which would be concluded within the contractual period. It would only be if the Charterers persisted in orders for an illegitimate last voyage that the question of repudiation would arise.” (Award para 22).[25]Mr Davey responds that persistence in orders for an illegitimate last voyage is precisely the situation in which the Owners would not suffer any loss, because the charter would be terminated and the Owners would be able to go out into the market. He submits that in fact they suffer loss in the reverse situation, where they do not feel able to terminate (usually because they do not know enough about the likely length of the final voyage) and therefore lose the opportunity to go out into the market. He relies on the factual realities as the Owners see them, submitting whilst they will be able to calculate the length of the ocean legs of the vessel, they will have little or no knowledge of the likely duration of the rest of the trip, as this will depend on availability of cargo, the arrangements made by the Charterers, shippers or receivers for the berthing, loading and discharge of the vessel, and the likelihood of delays at the ports in question. Owners are often not privy to such information, he says, and to a large extent have to rely upon what the Charterers tell them. It is therefore often difficult for Owners to be sufficiently certain of the likely duration of the voyage to be able to reject the Charterers’ orders.[26]I fully recognise the force of the factual content of this submission. The practical difficulty in assessing the duration of the voyage, together with the potential liability in calling it wrongly, is quite sufficient to explain why shipowners might wish to include a provision of this kind in a time charter. But this does not in my view meet the tribunal’s point. The possibility of loss arises if an illegitimate last order is given. If the order is persisted in, the owners can bring the contract to an end and go into the market. But in that case, they suffer no loss (a point made by Lord Mustill in The Gregos, ibid at page 10, and by Rix LJ in the The Achilleas, ibid, commenting on his remarks at page 564).[27]If however the Owners choose to accept the order, their recoverable loss is not what the vessel would have earned at market rates for the remainder of the charter period, but the market rate for the overrun period if an overrun transpires. Commenting on Lord Mustill’s remarks as they apply to that situation, Rix LJ says that “… if the owners had simply permitted the illegitimate voyage to be performed, they could not have complained that the available substitute voyage, which had not been fixed, was lost” (The Achilleas, ibid, at 564). Contrary to their submissions, the Owners have not lost the chance of an earlier redelivery, but have chosen not to take that chance, which is a different thing. As Mr Simon Birt for the Charterers put it, the “opportunity” of earlier redelivery of which Owners contend they have been deprived (and compensation for the loss of which they say clause 101 is a pre-estimate) is not an opportunity that they ever had.[28]That in my view is sufficient to justify the tribunal’s conclusion that clause 101 was a penalty. The second limb of its reasoning centres on the law as to recoverable loss as decided in The Black Falcon. I have discussed above the Owners’ criticism of that decision, and explained why in my view it is binding on me, and need say no more about it at this juncture.[29]The Charterers further argue that clause 101 does not in any case create an obligation not to give an invalid last voyage order, but is about late redelivery. Picking up on the language of the clause, it is submitted that, contrary to the Owners’ construction, the clause can respond even when the last voyage order is legitimate, in other words one which was reasonably expected to be completed within the redelivery date. This could come about because of the different standard applicable under clause 101 with its requirement of “thorough investigations” and “every arrangement”. Similarly, it is a necessary condition for the operation of the second part of clause 101 that the vessel is redelivered late, but (as is pointed out) that is not the test for judging whether a last voyage order is legitimate—that inquiry takes place at the time the order is given, when it is not known when the vessel actually will be redelivered. Performance of the clause 101 obligation required the Charterers to “ensure that the last voyage of this Charter will in no way exceed the maximum period under this Charter Party”. This it is submitted goes to redelivery. Clause 101 does not require Charterers to redeliver the vessel any earlier than the last permissible redelivery date.[30]I think that there is force in this submission, and clause 101 is clearly not precisely coterminous with the obligation not to give an illegitimate last voyage order. I would be reluctant however to conclude that it follows from that alone that the clause is thereby to do with the failure to make due redelivery, and that the case therefore falls within the Owners’ concession that if the clause had simply provided for an extra 30 days hire to be paid in the event that the vessel was redelivered late, that would be a penalty. On a fair reading of the clause, it has to do with the possibility of an illegitimate last order and the effect of such an order on the redelivery obligation, and these are linked concepts.[31]The Charterers argue in the alternative that the distinction that the Owners seek to draw between damages for instructing the vessel to undertake an illegitimate voyage and damages for redelivering after the end of the charter period is an illusory one. The relevant question, it is submitted, is what loss has been caused to the Owners because of the breach (whether it be characterised as a breach of the obligation not to redeliver late, or a breach of an obligation not to instruct the vessel to go on an illegitimate voyage). In support of the proposition that the loss is the same in either event, reliance is placed on Time Charters at §4.74 which states that:
“It is thought that, strictly, the owners’ damages claim can be formulated both as a claim for damages caused by the illegitimate order and as one for damages for failure to redeliver timeously, but in practice the two claims are likely to be indistinguishable.”
In my view, this is a correct statement of the law. It is consistent with the rules as to what loss is recoverable by the owners in this type of situation, which I shall not repeat.[32]Finally, I come to the amount claimed on the basis of clause 101, noting that the award in this case was made by three very experienced maritime arbitrators (Mr Michael Baker-Harber, Mr Alan Burbidge and Mr Robert Gaisford). They were well placed to judge the nature of the provision in its commercial setting. They pointed out that if the vessel was redelivered only one hour late, the amount of the claim of $471,602.32 would be payable in full (Award para 27). They were, in my opinion, right to take the view that this would be an “unconscionable” amount within the meaning of the case law, and equally so in the case of a delay in redelivery of just over six days as in the present case. Like the arbitrators, I consider that the primary purpose of the clause was to deter the Charterers from breaching their obligation to redeliver the vessel in time, and whilst such a purpose may in a sense be understandable because of the limits to the Owners’ knowledge about the likely length of the final voyage at the time of the order, the clause was in my view a penalty, and not a genuine pre-estimate of damage resulting from a breach of contract. I would dismiss the Owners’ appeal, and confirm the Award.[33]I should record my thanks for the excellent arguments on both sides, and will hear the parties as to any consequential orders.