Late Redelivery Clause An Unenforceable Penalty

In Lansat Shipping Co v. Glencore Grain BV (25

March 2009) the Commercial Court held that a liquidated damages

clause relating to late redelivery in a time charter was penal and

unenforceable. The decision highlights a creativity on the part of

some owners in seeking to obtain from charterers more extensive

damages than are typically recoverable under English common

law.

Lansat chartered the bulk carrier "Paragon" to

Glencore for a period of three to five months. The charter, which

was on amended NYPE form, included a provision which stated,

"If...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 thirtieth day prior to the maximum

period...until actual redelivery of the vessel to the

Owners".

Glencore redelivered the vessel six days late, and paid Lansat

hire at the market rate for the period of the overrun, so covering

the normal English law measure of damages in such circumstances.

Lansat sought to enforce the charter provision quoted above, which

would have entitled them to recover a further US$471,603 from

Glencore.

The Commercial Court found that the clause on which Lansat

sought to rely was penal in nature and unenforceable. The Court

held that the provision was not designed to compensate Lansat for

losses resulting from late redelivery, but rather was a punitive

term intended to deter charterers from ordering the vessel on a

last voyage which could not reasonably be expected to end before

the expiry of the charter period.

Lansat argued that the clause was a genuine pre-estimate of loss

and that it was reasonable in circumstances where, because of a

lack of information about a proposed last voyage, they could not

determine whether a last voyage order was in fact illegitimate and

entitled them to take early redelivery. The Court rejected this

argument, finding that it was a matter for owners to decide whether

to accept final voyage orders, and that, having decided to perform

a final voyage, owners were only entitled to damages if and to the

extent that the period of the voyage extended beyond the end of the

charter period.

Although...