Key takeaways
Court clarifies limits on repossession rights
Owners must follow contractual and statutory obligations carefully.
Early termination clauses require precise drafting
Ambiguity can lead to costly disputes and enforcement challenges.
Decision highlights importance of risk management in charters
Clear remedies and compliance reduce exposure to litigation.
The English Court of Appeal has addressed the appropriate interpretation of clause 29 of the BIMCO Barecon 2001 standard form of bareboat charter – the clause which concerns the repossession of a vessel following early termination.
The Court of Appeal has confirmed that repossession of a vessel upon termination must be prompt and practical – not dictated solely by the shipowner’s own convenience.
The background facts
The dispute arose in relation to a bareboat charter dated 11 February 2013, on an amended BIMCO Barecon 2001 form, whereby a Croatian shipbuilder, Brodotrogir DOO (BDOO), agreed to bareboat charter a 49,708 DWT chemical & oil product tanker it was building to Songa Shipping Pte Ltd (Charterparty) for a period of five years (plus or minus two months at charterers’ option).
The tanker was subsequently named SONGA PRIDE (Vessel).
On 17 December 2013, the Charterparty was novated by the original parties to Songa Product and Chemical Tankers III AS (Owners) and Kairos Shipping II LLC (Charterers). On 23 December 2016, the Vessel was delivered to Charterers.
On 14 May 2021, Charterers terminated the Charterparty under clause 28(d), citing the insolvency of Owners’ guarantor, BDOO. At the time of termination, the Vessel had recently completed discharging cargo at Stockton, California and Charterers had notified Owners that the Vessel was ready for them to take repossession at Stockton.
However, Owners refused to repossess the Vessel at Stockton and instead insisted that the Vessel be brought by Charterers to Trogir, Croatia (where BDOO had a shipyard).
Charterers commenced the voyage to Trogir under protest. On 20 September 2021, after sailing for 37 days, Charterers arrested the Vessel at Gibraltar. Owners eventually took possession of the Vessel on 7 January 2022 after providing security (as ordered by the Supreme Court of Gibraltar).
Arbitration proceedings
On 13 January 2022, Charterers commenced LMAA arbitration proceedings against Owners, claiming damages of US$2.19 million for Owners’ alleged breach of clause 29 for failing to take possession of the Vessel at Stockton “as soon as reasonably practicable” and that Stockton was a suitable location.
These damages comprised the costs Charterers had incurred in crewing and running the Vessel from 14 May 2021 to the date Owners repossessed it at Gibraltar (i.e., 7 January 2022). In the alternative, Charterers claimed those sums in bailment, on the grounds that they were gratuitous bailees of the Vessel for the same period.
Owners denied the claim, maintaining that Charterers had not been entitled to terminate under clause 28(d), or at all. Owners maintained that they had a right to choose a port or place convenient to them for repossession – and that Trogir met that criterion. Owners counterclaimed against Charterers for lost hire and repair costs.
The Tribunal found in favour of Owners. The Tribunal held that clause 29 permitted Owners to choose a location that was objectively convenient for repossession, provided it was not an irrational or arbitrary choice.
The Tribunal awarded Charterers only US$721,045.08 of the damages they claimed, constituting limited expenses incurred before and during the voyage to Gibraltar. Owners’ counterclaim for lost hire failed, but they were awarded US$1.13 million for repairs.
The Commercial Court decision
Charterers appealed to the English High Court pursuant to s.69 of the Arbitration Act 1996 (point of law). Charterers asserted that the Tribunal had erred in law in its interpretation of Clause 29 of the Charterparty.
Charterers obtained leave to appeal. The Commercial Court subsequently held that Owners were required to repossess the Vessel at Stockton (its current port), unless it was impractical or impossible for them to do so.
The Court of Appeal decision
The pertinent legal issue for the Court of Appeal’s consideration was the proper construction of clause 29, which read (in part) as follows.
“…the Owners shall have the right to repossess the Vessel from the Charterers at her current or next port of call, or at a port or place convenient to them without hindrance or interference by the Charterers, courts or local authorities…. The Owners shall arrange for an authorised representative to board the vessel as soon as reasonably practicable following the termination of the Charter.”
Owners maintained that this clause gave them the right to choose any convenient port for repossession. Charterers contended that the clause required Owners to repossess the Vessel at its current or next port unless that was impractical or impossible.
The Court of Appeal unanimously dismissed the appeal and thus upheld the Commercial Court’s decision.
In short, the Court of Appeal held that clause 29 did not grant Owners an unrestricted right to choose any port for repossession. Instead, the default position is that a vessel should be repossessed at its current or next port, unless that is impractical or impossible. The Court held that Owners were subject to an obligation to repossess the Vessel as soon as reasonably practicable. Further, as Charterers became gratuitous bailees upon termination, they were not required to undertake long or costly voyages unless strictly necessary to facilitate timely repossession by Owners.
As part of its legal analysis and in arriving at its decision, the Court of Appeal made the following points:
Clause 29 should be interpreted in line with the broader context of the Charterparty – particularly clause 28, which identifies various early termination scenarios (including defaults by either party and insolvency). The Court rejected an argument raised by Owners that clause 29 should be construed in their favour simply because terminations are more likely to result from Charterers’ default. Instead, the Court held that clause 29 applies neutrally, regardless of the party at fault – and should not be interpreted with a presumption favouring either side.
The Court held that upon termination of the Charterparty, the Charterers’ obligations to operate, maintain and insure the Vessel ceased. This creates a legal and commercial imperative for Owners to promptly repossess the Vessel at the first opportunity (namely, at its current port, or its next port of call, if at sea).
The Court held that the words “or at a port or place convenient to them” in clause 29 do not provide Owners with an unfettered right to choose any location. Instead, the Court held that the words have a clear purpose and meaning as a fall-back in the event that “her current or next port” is not convenient for taking possession, as Owners are obliged to do, as soon as reasonably practicable.
The wording referring to a “convenient place” had to be read together with that requiring Owners to place a representative on board as soon as reasonably practicable, and that the Vessel would be deemed to be repossessed at that stage. This wording did not impose an obligation requiring Owners to repossess as soon as practicable regardless of whether a place was convenient to them.
Comment
This decision provides useful clarification on the limits of a shipowner’s rights regarding termination under the Barecon 2001 form. It confirms that repossession of a vessel upon termination by a charterer must be prompt and practical – not dictated solely by the shipowner’s own convenience.
By rejecting the broad interpretation of the words “convenient to them” in clause 29, the Court of Appeal reinforced the principle that contractual terms must be read in their full commercial and legal context.
We anticipate that this decision will likely influence how future bareboat charterparties are drafted and interpreted, particularly in managing termination and handover logistics.
