• In the case of Isabella Shipowner SA v Shagang Shipping co ltd 2012 EWHC 1077 Comm, it was held that a shipowner’s refusal to accept early redelivery by a charter under a long-term charter was reasonable.

Facts of the Case

  • The appellant shipowner (S) appealed against a decision of an arbitrator that it was bound in law to accept an early redelivery of its vessel under a time charter and to sue for damages.
  • The vessel had been chartered to the respondent (R) on an amended NYPE form for a duration of 59-61 months.
  • The charted included an express warranty that the vessel would not be redelivered before the minimum period of 59 months.
  • In admitted anticipatory breach of the charter, R redelivered the vessel 94 days early.
  • S therefore refused to accept the redelivery and commenced arbitration to seek an award declaring that it was entitled to refuse redelivery and to affirm the charterparty, holding R liable for hire for the balance of the minimum period.
  • The arbitrator held that S was required to take redelivery of the vessel, trade the vessel on the spot market by way of mitigation and claim damages in respect of its loss.
  • He also held that S could not refuse to accept the repudiation and affirm the continuation of the contract (White & Carter (Councils) Ltd v McGregor) applied.

Issues in Isabella Shipowner SA v Shagang Shipping co ltd 2012 EWHC 1077 Comm

  • Did S have a legitimate interest in insisting that the charter remained alive?

Held by Queen’s Bench Division (Commercial Court)

  • Appeal allowed.

Cooke J

  • Here, S could claim hire from R under the time charter without the need for R to do anything under the charter. If R failed to give any orders, the vessel would simply stay where it was, awaiting orders but earning hire. Although R was obliged under the terms of the charter to provide and pay for fuel, should the bunkers run out whilst awaiting orders, it was open to S to stem the vessel and to charge that to R’s account.
  • The arbitrator applied the wrong test when considering whether S had a legitimate interest in maintaining the charter, as opposed to accepting the repudiatory breach, trading on the spot market in mitigation of loss and claiming damages for the difference. The effect of the authorities was that an innocent party would have no legitimate interest in maintaining the contract if damages were an adequate remedy and his insistence on maintaining the contract could be described as wholly unreasonable, extremely unreasonable or, perhaps, perverse.
  • “The arbitrator identified the factors upon which the parties relied and I have referred to the parties’ submissions to show what additional factors there were which were put before him. The arbitrator set out, in extenso, the submissions of the parties in the Award, so it is possible to see what was argued before him. Neither party had any additional matters to put before the court either.  In those circumstances it is possible for the court to assess the inevitable outcome of applying the right test to the facts of the case, as found by the arbitrator. With only 94 days left of a 5-year time charter in a difficult market where a substitute time charter was impossible, and trading on the spot market very difficult, it would be impossible to characterise the owners’ stance in wishing to maintain the charter and a right to hire as unreasonable, let alone beyond all reason, wholly unreasonable or perverse. As the arbitrator said, this is not an extreme or unusual case and in such circumstances the exception to the White and Carter principle cannot apply.” [55-56]