153. Arta Shipping Co Ltd v Thai Europe Tapioca Service Ltd (The “Johnny”) [1977] 1 Lloyd’s Rep 257; [1977] 2 Lloyd’s Rep 1

Redelivery – “market rate” in Baltime clause 7 interpreted to mean equivalent time charter rate as opposed to spot charter rate

The facts

Clause 7 of the Baltime charterparty under which the vessel was let read as follows:

“…should the vessel be ordered on a voyage by which the charter period will be exceeded the charterers to have the use of the vessel to enable them to complete the voyage, provided it could be reasonably calculated that the voyage would allow redelivery about the time fixed for the termination of the charter, but for any time exceeding the termination date the charterers to pay the market rate if higher than the rate stipulated herein.”

The vessel was redelivered almost a month late and the parties agreed that clause 7 was applicable.

The owners contended that the market rate referred to in clause 7 was the spot rate which was considerably higher than the market rate for a time charter of a length equivalent to the time charter in question.

The owners contended that like should be compared with like and that a market rate in clause 7 did in fact refer to a rate for a comparable time charter.

Mr CAL Clark and Mr Cedric Barclay were appointed as arbitrators who were unable to agree. They appointed Mr Donald Davies as the umpire.

The umpire found in favour of the owners but stated a special case for the Commercial Court.

Findings

Donaldson J in the Commercial Court found shortly that the charterers’ argument was to be upheld.

The Court of Appeal (Orr and Sir David Cairns LJJ – Lord Denning MR dissenting) upheld the Commercial Court.

Commentary

All the judgements in favour of the charterers derived support for their interpretation of the clause from considerations of fairness. In their view it would be unfair to place upon the charterers the high rate of an outward voyage to an unpopular port, in this case, Karachi, which would have been built into the charter rate agreed upon between the parties (the final voyage was one from Europe to Karachi). The view of the three judges who decided in favour of the charterers was simply that their interpretation made commercial sense and was fair.

Despite the Court of Appeal giving a split decision, leave to appeal to the House of Lords was refused.

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