As many of our followers will know, the market has recently been very buoyant in certain sectors. It comes as no surprise that charterers who may have fixed vessels some time ago on period terms are looking for every conceivable means to extend the charter periods so as to maximise their trading profits.
This has resulted in some interesting issues of contractual interpretation when it comes to clauses that permit a charterer to add certain off hire periods to the charter period.
Given that such clauses are invariably construed as options in favour of the charterer, it is vital that they read the clause carefully, particularly as to by when they must exercise the option. Ideally, option clauses will contain a clear deadline by when the option must be exercised. For example, if a clause states that a charterer must exercise their option to add off hire periods to the charter period by the end of the 121st month from delivery, then that’s pretty clear-cut as the date (and month) of delivery will be well known.
However, what happens if the option provides for off hire periods to be added to the maximum duration permissible under the charter and the option is to be exercised 30 or 60 days prior to redelivery? That option requires careful analysis of the maximum duration of the charter and any tolerances in terms of “about”. In one recent case that we handled, there was a dispute over the late exercise of the option in part because of charterers’ miscalculation of the correct maximum period, such that charterers counted back from the wrong date. Such errors can be costly. We advised the owners in that case. The vessel was coming to the end of a ten-year period charter. Over the course of those ten years some 90 eligible days of off hire had accrued. The charterers’ error cost them the chance to extend the charter by three months at a very favourable rate compared to the rates available in the market and it enabled our (very happy) owner clients to re-fix the vessel into a much more profitable follow-on fixture.
If there’s a moral to the story, then it is that charterers should always check the option clause carefully and, if in doubt, take legal advice well in advance so that they ensure that they exercise the option validly.
