In the firm’s London Calling series, Patrick Knox and Brian Perrott of Holman Fenwick and Willan have been looking at the issue of charter termination and whether the termination of the head charter kills the sub charter.
Albeit involving rather particular facts, a recent case* highlights the risks for lenders, owners and charterers in the event of the termination of a head charter.
The termination was of bareboat charters entered into by way of the financing of the purchase of two Ro-Ro ferries by the charterers from the owners. The owners argued that as a result of the lawful termination of the head charters (in turn the result of a "termination event"/"change of control event" affecting the family holding company that controlled the charterers), a series of back-to-back sub bareboat charters (all involving companies under the control of the same family holding company) had also been terminated (the result of a similar "termination event"), thereby entitling owners to redelivery.
The various charterers and sub charterers challenged that.
The question for the court was the legal consequence of the termination of the head charters on the various sub charters.
It held that, as a result of the contractual arrangements agreed between the parties (rather than pursuant to any general matter of principle) the sub charters automatically terminated when the head charters terminated, so that the charterers and sub charterers were bound to redeliver the vessels. It was thus important that the contractual documentation provided that the various charterparties were to be on back-to-back terms, such that, when the head charters terminated, so too would the sub charters.
Against that background, the court did not need to make findings as to the adequacy of notices given by owners to the various charterers and sub charterers. Nevertheless it offered a critique of the terms of these notices had they in fact been necessary to justify termination of the sub charters, making clear that separate notices should have been served on each sub charterer, and that these should in general terms have been served as soon as possible.
Despite turning on particular facts, the case is a reminder both to contemplate and to document what will happen under sub charters in the event of termination of head/superior charters.
* SY Roro 1 Pte Ltd & anr v. Onarato Armatori Srl & ors [2024] EWHC 611 (Comm)