Frustration under a time charter

Charterer           Time Charter
Form                  Baltime
Type                   FD&D Claim / Frustration

Class I Defence (FD&D)

Frustration of time charterparty

Synopsis: This case deals with the delicate legal English law principle of frustration where sound legal advice from the Club and English solicitors is paramount to avoid unpleasant consequences arising of a potential repudiatory breach for unlawful termination of contract. The advice received by the Assured after the ship is placed out of service for a long period of time allows him to eventually agree on a mutual termination with Owners which would otherwise have been unlikely. The solicitors’ costs amount to USD 10,000 with the Club’s defence department allocating some 8 hours to this case.

A vessel on time-charter to the Assured suffers a fire in the accommodation, causing extensive damage to the vessel. The vessel calls into a port of refuge and it becomes clear that it will take up to two months before repairs are completed and the vessel is again available for service.

The vessel is fully laden and the Club despatches a surveyor to verify Owners’ repair time estimate. Thereafter, the cargo is transhipped to its ultimate destination. The more serious problem facing the Assured, however, is whether or not he remains bound by the charterparty where he can expect no benefit from it for at least two months. The Club advises that, under the charterparty terms, while hire is clearly not payable during the period concerned, the Assured would appear to face difficulty in releasing himself from his obligations by establishing that the charter is frustrated. Preliminary advice from the Club is endorsed by London lawyers to the effect that, while the delay is substantial, in the context of the unexpired portion of the charter it is not sufficient to constitute frustration under English law. A commercial termination of the charterparty is subsequently negotiated with the owners.

Without the advice of the Club, the Assured might have sought to terminate the charter on learning the duration of the repairs. Had he done so, he would probably have placed himself in repudiatory breach and faced a claim for heavy damages from the owners. The preliminary advice and assistance from the Club was free to the Assured and the subsequent advice and assistance of the London solicitors was recoverable from the Club under the Assured’s defence cover.

 

Please click here to view the document