February, 2025 - It’s all in the (re)delivery: the law and early redelivery disputes

Recent significant falls in the freight market, notably in the dry bulk sector, have reignited the prospects of some charterers stating (or insisting) that they will redeliver a ship before the earliest redelivery date.

The charterer’s obligation is to redeliver the ship no earlier than the earliest redelivery date.

As a matter of general principle (based on the decision in White and Carter (Councils) Limited v McGregor [1962] AC 413) a contract breaker who evidences an unequivocal intention not to perform a contract in some material respect, will be in repudiatory breach, leaving the innocent party either to accept the repudiation and bring the contract to an end, or to affirm the contract, if the innocent party can complete the contract itself, without the need for any action on the part of the contract breaker. In such circumstances, the innocent party will be in a position to sue for the agreed price (or in this scenario sue for the hire).

But the critical question in the context of early redelivery is whether an owner under a time charter is entitled to hold the charterer to the terms of the charter where the charterer says that it intends to redeliver the ship before the earliest redelivery date, so as to require the charterer to pay the hire for the balance of the minimum period.

Instinctively, it might be thought that the owner must accept the charterer’s repudiatory conduct and mitigate the loss by fixing another employment. But, under English law, that is not the position, save in exceptional circumstances.

The point was considered and decided by Mr Justice Cooke in The Aquafaith, [2012] EWHC 1077. He decided that in cases of early redelivery the White and Carter principle applied, so that the owner had the option to affirm the charter and hold the charterer to its bargain until the earliest redelivery date. If the charterer failed to give any orders, the ship would simply stay where it was, awaiting orders but earning hire.

Although the master is under the orders of the charterer, the master and crew are the servants of the owner and the ship is available to the charterer for any order it wishes to give. Hire continues to be earned. Although the charterer is obliged under the terms of the charter to provide and pay for fuel, should the bunkers run out whilst awaiting orders, it is open to the owner to stem the ship and to charge that to the charterer’s account. In order to complete its side of the bargain, the owner does not need the charterer to do anything in order for it to earn the hire in question. The earning of hire after purported redelivery was not dependent on any performance by the charterer of its obligations.

The exception to the White and Carter principle is where the innocent party has no legitimate interest in maintaining the contract. But Mr Justice Cooke made clear that that exception would only operate in very limited circumstances, saying that the innocent party will have no legitimate interest in maintaining the contract if damages are an adequate remedy and his insistence on maintaining the contract can be described as "wholly unreasonable", "extremely unreasonable" or, perhaps, in the words of the judge, "perverse". The burden is on the charterer to show that the owner has no legitimate interest in maintaining the contract. In that respect it was relevant that the charterer could sublet the ship, and relevant also that if the owner accepted the early redelivery there could well be arguments (and protracted ones at that) about the level of damages which the owner was entitled to recover as a consequence of the charterer’s breach.

It will be appreciated that the burden on the charterer to show that the owner had no legitimate interest in maintaining the charter will be a very difficult one to discharge. Cases of early redelivery usually arise in circumstances where the market is falling and the owners would appear to have a very legitimate interest in maintaining the charter so as to obtain the contractual (and thus higher) rate of hire.

Questions may arise as to whether an owner could legitimately refuse redelivery where the charterer redelivers a very long time before the earliest redelivery date, but the principle will on the face of it apply even in such circumstances. In practice, however, it would be necessary to consider whether the owner would wish to keep the ship idle for a very long period, particularly if the charterer is facing financial difficulties or is less than first class.

As always, if Members have any questions in relation to the above issues they are invited to contact the Club for further information.