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Transport

Charterer was liable for subcharterer’s rejection of ship

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Legal news
calendar 4. July 2021
globus Denmark

A dispute arose when a subcharterer did not approve the chartered ship. The charterer and owner disagreed whether the contract between those two was also conditional on that approval. The charterer alleged that the term was set out in the recap email in which the agreement between the owner and the charterer was concluded. This email referred to “successful inspection”. The Court found that it had not been sufficiently established that the head charter was conditional on the approval of the subcharterer and the defendant charterer had to bear the risk of rejection.

A ship owner entered a time charterparty based on a standard contract for chartering of a ship with a charterer. The ship was to be used by a subcharterer who entered a contract with the head charterer. Upon the ship’s arrival, the subcharterer was to approve the ship as it had to be used to do work on an offshore wind farm. However, the subcharterer did not approve the ship and the head charterer then alleged that the agreement had not been made final between the owner and charterer.

The owner alleged that an agreement had been concluded and that it was not conditional on the approval of the ship by the subcharterer. The charterer would then have to bear the risk of the subcharterer’s refusal.

The charterer considered that the terms of the subcharterer’s approval had been agreed between the parties. The agreement was concluded via email correspondence and one of the emails from the charterer contained a term on “successful inspection”. The charterer considered that the owner had agreed upon this term.

The owner argued that the final agreement had not contained any terms of approval and that there was no basis for interpreting the term “successful inspection” broadly to include an inspection of the subcharterer. The owner also stated that the charterer had not immediately notified the owner about the rejection.

The Maritime and Commercial High Court: Not established that condition had been adopted

The court observed that it is not uncommon for a chartering agreement to be conditional on the ship’s approval by a subcharterer. However, since it was the defendant who claimed that such a condition had been adopted, it was also the defendant who had the burden of proof of this.

The court also found that since the subcharterer did not approve the ship because of their own circumstances, the charterer was nearer to bearing the risk of rejection of the ship. The court also pointed out that the charterer did not inform the owner that the subcharterer had objections to the ship. Since the court did not find that it had been established that the contract was conditional on the approval of the subcharterer the charterer had to bear the risk of rejection.

IUNO’s opinion

This case shows how important it is – even when things are moving fast – that terms of contract are clear. Also, that agreements in a contract chain, as far as possible, contain the same or similar terms, to avoid ambiguity for the party or parties in the middle of a contractual chain.

IUNO recommends having the most important of such contracts reviewed by a lawyer.

[The Maritime and Commercial High Court’s ruling in case BS-45496/2019-SHR of 16 November 2020]

A ship owner entered a time charterparty based on a standard contract for chartering of a ship with a charterer. The ship was to be used by a subcharterer who entered a contract with the head charterer. Upon the ship’s arrival, the subcharterer was to approve the ship as it had to be used to do work on an offshore wind farm. However, the subcharterer did not approve the ship and the head charterer then alleged that the agreement had not been made final between the owner and charterer.

The owner alleged that an agreement had been concluded and that it was not conditional on the approval of the ship by the subcharterer. The charterer would then have to bear the risk of the subcharterer’s refusal.

The charterer considered that the terms of the subcharterer’s approval had been agreed between the parties. The agreement was concluded via email correspondence and one of the emails from the charterer contained a term on “successful inspection”. The charterer considered that the owner had agreed upon this term.

The owner argued that the final agreement had not contained any terms of approval and that there was no basis for interpreting the term “successful inspection” broadly to include an inspection of the subcharterer. The owner also stated that the charterer had not immediately notified the owner about the rejection.

The Maritime and Commercial High Court: Not established that condition had been adopted

The court observed that it is not uncommon for a chartering agreement to be conditional on the ship’s approval by a subcharterer. However, since it was the defendant who claimed that such a condition had been adopted, it was also the defendant who had the burden of proof of this.

The court also found that since the subcharterer did not approve the ship because of their own circumstances, the charterer was nearer to bearing the risk of rejection of the ship. The court also pointed out that the charterer did not inform the owner that the subcharterer had objections to the ship. Since the court did not find that it had been established that the contract was conditional on the approval of the subcharterer the charterer had to bear the risk of rejection.

IUNO’s opinion

This case shows how important it is – even when things are moving fast – that terms of contract are clear. Also, that agreements in a contract chain, as far as possible, contain the same or similar terms, to avoid ambiguity for the party or parties in the middle of a contractual chain.

IUNO recommends having the most important of such contracts reviewed by a lawyer.

[The Maritime and Commercial High Court’s ruling in case BS-45496/2019-SHR of 16 November 2020]

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Mads

Poulsen

Partner

Aage

Krogh

Partner

Lars

Rosenberg Overby

Partner

Mads

Christopher Whitta-Jacobsen

Associate

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The team

Aage

Krogh

Partner

Ida

Thune Ikkala

Legal assistant

Lars

Rosenberg Overby

Partner

Mads

Christopher Whitta-Jacobsen

Associate

Mads

Poulsen

Partner