Clarifying charterers’ redelivery obligations under BARECON 2001: Songa Product and Chemical Tankers III AS v Kairos Shipping II LLC

Factual Background

The dispute arose under a bareboat charterparty dated 11 February 2013, on an amended BIMCO BARECON 2001 form, for a Vessel under construction that was subsequently named SONGA PRIDE (the Vessel). The charter was for a term of 5 years between Croatian shipbuilder Brodotrogir DOO (BDOO) and Songa Shipping Pte Ltd and was novated to Kairos Shipping II LLC, a BDOO subsidiary (the Owners) and Songa Product and Chemical Tankers III AS, another member of the Norwegian Songa Group of companies (the Charterers).

The appeal concerned the interpretation of clause 29 following an early termination under clause 28 of the charter.  Clause 29 provided that:

‘the Owners shall have the right to repossess the Vessel from the Charterers at her current or next port of call, or at a port or place convenient to them without hindrance or interference by the Charterers, courts or local authorities. Pending physical repossession of the Vessel in accordance with Clause 29, the Charterers shall hold the Vessel as gratuitous bailee only to the Owners. The Owners shall arrange for an authorised representative to board the Vessel as soon as reasonably practicable following the termination of the Charter’.

Termination of the Charterparty and repossession of the Vessel

On 16 October 2020, the Commercial Court in Split approved a Restructuring Plan and Pre-Bankruptcy Agreement for BDOO. Charterers asserted that this constituted an insolvency event under clause 28(d) of the Charterparty, entitling them to terminate the charter with immediate effect. At termination, the Vessel was docked in Stockton, California, and Charterers informed Owners that the Vessel was ready for repossession in accordance with clause 29.

Owners declined to repossess at Stockton and insisted that the Vessel be returned to BDOO’s shipyard in Trogir, Croatia. Charterers eventually sailed towards Trogir under protest but then arrested the Vessel in Gibraltar claiming damages.  At this point, Owners proceeded to repossess the Vessel. 

The Tribunal’s Award

Charterers initiated LMAA arbitration proceedings against Owners, seeking US$2,190,277.81 in damages for breach of clause 29, alleging that Owners failed to take possession of the Vessel at Stockton in a timely manner. The claim covered costs incurred from 14 May 2021 until repossession in Gibraltar. 

The tribunal found that on a plain construction of the clause, Owners were entitled to require the Charterers to redeliver in Croatia, being a “convenient place”, even if that required a trans-ocean voyage. The Owners’ choice was not arbitrary or improper.  Factors such as the presence of BDOO’s facilities at Trogir, as well as the practical challenges of mobilising a crew, especially in light of BDOO’s insolvency, let the Tribunal to find that clause 29 gave Owners the right to insist on repossessing the Vessel in Trogir rather than a port or place where (or near where) she was at the time of the termination.

The High Court’s Decision

Charterers appealed the Tribunal’s decision under s.69 of the Arbitration Act 1996 to the High Court which overturned the Tribunal’s decision. The Court held that properly interpreted, clause 29 required Owners to repossess the Vessel at Stockton (its then current port of call) unless doing so was impossible or impractical.

The judge held that clause 29 required Owners to take possession of the Vessel by arranging for their representative to board her as soon as reasonably practicable following termination. It was feasible for this to occur in Stockton and doing so would have been quicker than directing the Vessel to sail to Trogir. By insisting on delivery to Trogir instead, Owners were in breach of their obligation under clause 29 to take possession by boarding as soon as reasonably practicable.

The Court of Appeal’s decision

On appeal, the Court of Appeal upheld the judgment of the High Court, finding that Clause 29 did not permit Owners to demand a voyage to Trogir simply because Trogir was a ‘convenient’ location for repossession. 

The Court’s judgment, handed down by Phillips LJ, confirmed that following termination under clause 28, Owners must repossess the vessel as soon as reasonably practicable at her current port, or at her next port if termination occurs while at sea, unless repossession there is impracticable or impossible. 

The phrase “or at a port or place convenient to them” is a fallback that operates only where the current or next port is not suitable for prompt repossession; it is not a free-standing right enabling Owners to require redelivery at a distant location that suits their general convenience. 

The Court rejected Owners’ submission that clause 29 confers an open-ended election of location. The express reference to “her current or next port of call” would be redundant if Owners could always choose any place convenient to them and the structure does not impose an express duty on Charterers, post-termination, to undertake a potentially long and costly voyage for Owners’ convenience.

The words “convenient to them” are given effect as a safety valve where the current or next port is unsuitable for prompt repossession, for example if the vessel is at sea on a long passage or in a port where prompt boarding is not reasonably practicable. Any implied navigation obligation on Charterers, as gratuitous bailees, is strictly limited to what is necessary to enable Owners to repossess as soon as reasonably practicable.

Key Takeaways

• Repossession clauses under BARECON 2001.

The decision has clarified a key point of interpretation relating to repossession clauses in bareboat charters. It has confirmed that the phrase “port or place convenient to them” operates only as a fallback where prompt repossession at the current/next port is impracticable or impossible, not as a free-standing right to impose lengthy voyages on Charterers.

• Charterers’ post-termination role is limited and cost-sensitive. 

After termination, Charterers hold the vessel as gratuitous bailees only.  Any implied obligation to move the vessel extends no further than what is necessary to enable prompt repossession; Owners who delay or insist on a distant port risk being in breach and exposing themselves to claims for the Charterers’ caretaking costs. 

• Contractual terms will be interpreted in their full commercial and legal context.

When examining the ‘ordinary natural meaning of words’, it is always important to consider it within the context of the clause as a whole, and courts will consider other relevant contractual provisions alongside the overall commercial purpose of the provision and wider contract. 

This article was co-authored with Manos Panagopoulos.