Tripping up on charter party wording

The judgement in SBT Star Bulk & Tankers (Germany) GmbH & Co KG v. Cosmotrade SA (Wehr Trave) 2016 EWHC 583 (Comm) addressed the appeal of a preliminary issue in an arbitration as to whether or not the charterer had the right under the charter to order the vessel to perform a second voyage, despite the vessel already having completed one voyage or “trip”.

Indeed, the court found in favour of the charterer, emphasising that a trip charter is a time charter, where a vessel is taken on hire for a period of time rather than chartered for a single voyage from one area to another. During this time, the vessel remains under the directions and orders of the charterers in respect of its employment. The use of the word “trip” then, is not only misleading but also a “red herring”.

The vessel was chartered on an amended NYPE 1946 form for “one time charter trip via good and safe ports and/or berths via East Mediterranean/Black Sea to Red Sea/Persian Gulf/India/Far East always via Gulf of Aden”, for a minimum period of 40 days without guarantee. The vessel was delivered into the charter upon dropping last outbound sea pilot Algeciras on October 16, 2013. On the same day, the owner received instructions to load “…Sevastopul (Ukraine) + reverting (probably Gemlik/Turkey)” for discharge at “…probably… (Jeddah + Muscat + Hamriyah + Jebel Ali + Dammam.” The vessel duly proceeded from Algeciras to the Black Sea and loaded at Sevastopol/Avitla, Novorossiysk and Constantza/Agigea before proceeding to discharge its cargo at Jeddah, Sohar, Hamriyah, Jebel Ali and Dammam.

While the vessel was still said to be discharging cargo at Dammam, the charterer issued fresh loading orders to the vessel to proceed to Sohar after discharge had been completed at Dammam. It was these loading orders that led to a dispute between the charterer and the owner. In the ensuing arbitration reference, the tribunal found that the charterer’s loading orders were legitimate, and that they were entitled to load another cargo. The owner appealed.

It was the owner’s principal case that the tribunal was wrong to have found in favour of the charterer as a matter of the straightforward meaning and commercial sense of the words “one time charter trip”, and that there was no authority to support the tribunal’s interpretation of the charter. The owner further argued that the charter in question was for one trip, which meant a journey from one place or range of places to another, as was the case whereby discharge ended at Dammam.

The charterers argued that there are two types of time charters: term charters where the time period is fixed, and trip charters where time is uncertain and the duration is defined by a trip within a geographical range along a specified route. In both cases, the vessel remains under the orders and directions of its charterer in respect of its employment.

 Grounds for a decision

The court found in favour of the charterer on a number of grounds. First, the court said that there is no single definition as to what constitutes a “trip”. A trip could be a single voyage carrying cargo from one port to another or any number of possible permutations of this, such as multiple loading ports with discharge at one singular port, or perhaps a series of consecutive loading and discharging operations, all at different ports along a given route. All might be described as involving a single “trip” and so, therefore, the reference to “one” time charter trip is of little if any assistance. 

Secondly, whether or not the charterer were entitled to make a second voyage in this particular instance depended very much upon the construction of the charter and specifically whether or not the port of Sohar was excluded as a loading port. The Court found that Sohar was within the agreed trading limits and was not inconsistent with the contractual route, since it fell between Dammam and the permissible discharge ports of New Mangalore/Cochin, and between Dammam and Colombo, which was the closest redelivery port.

In addition, neither, as was submitted by the owner, were the charterer restricted from loading at Sohar by the use of the phraseology “via East Mediterranean/Black Sea to Red Sea/Persian Gulf/India/Far East” in the charter. Use of the words “via” meant “by way of” and “to” simply denoted the contractual route. Therefore, the charterer was entitled to direct the vessel to load and discharge as it wished, within the agreed trading limits and on the contractual route.

Finally, the court rejected the owner’s argument that if the tribunal was correct that the charterer had the right to perform another voyage, then the charter would be open-ended. The court found that the charterer was restricted by the agreed trading limits and by the contractual route. If the owner was correct in its position that the trip should have ended at the final discharge port of Dammam, this would have been commercially unattractive to the charterer, who would have been forced to ballast the vessel to the redelivery area and pay hire to the owner without the possibility of earning freight.

Precision required

The decision of the Commercial Court confirms that use of the word “trip” in connection with a charter is misleading. What is meant by the word “trip” very much depends upon the specific wording of the charterparty. To avoid any arguments about what constitutes the “trip”, it is therefore prudent to use precise wording in the charterparty to describe loading and discharge ranges and expressly provide what ports or areas are to be excluded.

In the absence of a clear contractual agreement as to what is excluded from a vessel’s trading pattern, the court may, as it did in this case, construe such provisions in favour of the charterer by finding that the charterer is entitled to order the vessel to load cargo from a port or place within a range that is not expressly excluded. 

Pavlo Samothrakis is a partner at Ince & Co, practicing a wide range of contentious and non-contentious matters in the shipping, international trade and energy and offshore sectors. He can be contacted at +971 4 307 6000 or pavlo.samothrakis@incelaw.com. Alexandra Bailey is a legal consultant at Ince & Co, specialising in wet and dry shipping, including maritime casualties. She can be contacted at +971 4 307 6000 or alexandra.bailey@incelaw.com.