July, 2023 - The Great Creation: A false friend?

Time charterparties usually require the charterer to provide a series of notices prior to redelivering the ship, informing the owner of the time and place of the redelivery. Very often, this will take the form of a series of “approximate” notices giving a decreasing amount of notice, followed by a series of “definite” notices even closer to redelivery. This should enable the owner to arrange for the ship’s next fixture and minimise any unemployment.

But what happens if a charterer does not give some (or all) of the required notices, or does not redeliver the ship in line with the notices that are given? In such situations an owner may look to claim damages, and in this regard might be attracted to an argument based on a case called The Great Creation [2015] 1 Lloyd’s Rep. 315, which provides a seemingly straightforward way to calculate damages.  

However, for the reasons set out below we would caution against relying too heavily on The Great Creation decision.

The general legal position

Current English case law on redelivery notices (which generally does not rise above the level of the High Court, so is subject to any future Court of Appeal decision) provides a number of important points to bear in mind regarding redelivery notices.

First, redelivery notices are not a condition precedent to redelivery, so a charterer can still validly redeliver a ship without giving some or any of the contractually-required notices. However (and this is the second important point) where a charterparty requires a charterer to give a series of notices, a failure to give any one of those notices will represent a breach of the charterparty.

Third, to be valid a redelivery notice must be given honestly, in good faith and on reasonable grounds (for brevity, “honestly”). So, a charterer is not entitled to give a whole series of notices on one day and then deliver the next – such notices would not be honest and therefore invalid, and the charterer would be in breach.

Fourth, there is a key difference between approximate and definite notices, namely that a charterer is not obliged to redeliver on the date specified in a valid approximate redelivery notice, nor are they in breach of the charterparty if they fail to do so (although the charterer must still redeliver within the contractually-permitted period). This was established in a case called The Zenovia [2009] 2 Lloyd’s Rep. 139.

Fifth, where there is a breach an owner will (in the usual way) have to demonstrate losses flowing from that breach, and that the losses are not too legally remote. This might be relatively straightforward in the case of a long-term time charter where a charterer suddenly redelivers (within the contractually-permitted window) without giving any notices, as the owner can presumably show the ship’s subsequent unemployment would have been shorter if the owner had been given an opportunity to arrange the next fixture.

However, it would probably be harder for an owner to demonstrate losses flowing from the breach where (a) the ship is on a time trip charter, where the end of the charter, at the conclusion of discharge operations, would be more predictable to the owner, or (b) where the charterer merely misses out one or two notices in a sequence when the other notices given provided the owner with a consistent understanding of when the ship would likely be redelivered.

The Great Creation

On the facts of this case, the charterparty permitted redelivery between 29th March and 14th May, 2010 and required the charterer to give 20/15/10/7 approximate and 5/3/2/1 definite days’ notice of redelivery. The charterer tendered a 20-day approximate notice on 13th April, 2010, but redelivered on 19th April, 2010 when the ship completed discharge, i.e. 6 days later.

In a subsequent arbitration, the tribunal found as facts that (a) the 20-day approximate notice was not given honestly, because on 13th April, 2010 the charterer had decided to redeliver the ship following the completion of discharge (having previously intended to fit in another voyage before redelivery) and (b) an approximate notice implied a margin of 2 days, such that the charterer was in breach for redelivering sooner than 18 days after the notice. Consequently, the owner was entitled to claim as damages hire from 19th April to 1st May, 2010 (i.e. 18 days after the 20-day notice), less any sums received by way of alternative employment arranged in mitigation of the loss.

The charterer appealed the case to the High Court. A key point for the judge (Cooke J) to consider was: what was the appropriate counterfactual “no breach” scenario, against which to compare for the purpose of calculating damages? Was it the charterer (a) giving all of the required notices, starting 20 days before 19th April, 2010 (i.e. 31st March, 2010) or (b) starting the notices on 13th April, 2010 and not redelivering before 1st May, 2010?

The judge found that the correct counterfactual was (b), because the charterer could not have given an honest 20-day notice on 31st March, 2010 (as at that point they intended to fit in another voyage). Consequently, the owner’s loss was hire from 19th April to 1st May, 2010 (less sums gained in mitigation).

However, it is important to note that the judge was constrained by the facts as found by the tribunal, including the two-day margin point and the timing of the charterer’s intention. Indeed, the judge noted that “it seems to me that different conclusions could be reached on this issue by reference to the facts of an individual case”. The judge was not purporting to lay down a general principle of application to all cases. Rather, his conclusions were based on the particular facts of the case before him, and he was not giving judicial authority to (for example) the “two day margin” point.

Proceed with caution

We have seen some owners argue that The Great Creation means that once a charterer gives the first approximate notice then the charterer will be in breach if it redelivers sooner than the 2-day margin, e.g. redelivering sooner than 18 days after a 20-day approximate notice, or sooner than 13 days after a 15-day approximate notice, and the owner can claim hire for the period between actual redelivery and the start of the 2-day margin (less any sums received in mitigation).

We consider that  a cautious approach to this argument should be adopted. Not only was The Great Creation only decided on its specific facts, but such an argument would appear to go against the principle in The Zenovia (i.e. that a charterer is not bound to follow an approximate notice, as long as it is given honestly and the ship is still redelivered within a contractual window).

It would seem that the key question remains: has the charterer given honest notices? If so, it will be difficult for an owner to show a breach. Even if the charterer has missed out some notices in the sequence and there is a breach, the owner will only be able to claim damages linked to the absence of those notices, which (as above) might be difficult.

Consequently, The Great Creation reasoning may only apply in circumstances where the charterer has not given honest notices and could not have done so prior to redelivery. In all other situations, the owner will probably still need to show a breach and then satisfy the usual tests of causation and remoteness.

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