Charter Restructuring Agreement – rectification allowed
Eight VLCC’s owned by singletons in a syndicate were purchased from, and then time chartered back to, the Charterers with an option to purchase.
During the course of the Charters and after extensive negotiations, the parties entered into a Charter Restructuring Agreement (“CRA”). The purpose of the CRA was to give the Charterers the immediate benefit of a reduction in rental which they had to make up at the end of each charter.
The reduced rental was expressed as the higher of a minimum rate and a percentage of a Time Charter Equivalent (”TCE”) based on daily spot rates.
Because hire was to be paid monthly in advance the TCE rate so determined, lagged continuously by one month. The parties agreed a formula to achieve equalization bi- annually which would entail a top up by the Charterers or a refund/credit by the owners, as the case may be.
The equalization formula referred only to the TCE rate and did not take into account the minimum rate principally agreed upon.
Charterers argued that the equalization formula had to apply irrespective of whether the minimum rate prevailed, i.e. was higher than the TCE or not. This would render the stipulation of a minimum rate valueless.
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