A Nice Try! But Off-Hire Remains the Main Remedy Unless A Separate Breach of the Charter Can Be Demonstrated

London Arbitration 9/22

The vessel was chartered on a trip basis on an amended NYPE form for carriage of bulk titanium slog and bulk rutile sand. On arrival at the first loading port, the surveyors appointed by the charterers to inspect the cargo holds found that the holds were not ready for loading of the intended cargo. The relevant charterparty form stipulated (cl 49):

Vessel holds on arrival at the first load port(s) to be clean, dry, free of rust and/or scale and cargo residues and ready in all respects to load any/all permissible cargoes under the charterparty to the satisfaction of charterers’ nominated surveyor. If the vessel is not approved by the surveyor, the vessel is to be placed off-hire from the time of that failure until the vessel passed a subsequent survey. All expenses, losses and liabilities arising from the failure are for owners’ account.

It was not in dispute that the failure in inspection triggered the application of cl 49 and the chartered vessel was off-hire from the date the formal inspection was carried out until the surveyor found that the vessel was ready for loading on 12 October (this was a typical period off-hire clause). The dispute here was whether the vessel was off-hire at an earlier date (i.e. 2 October)- this was the date when an informal survey was carried out at anchorage by the same surveyor. The request for this survey was made by the charterer and the owners agreed to it so as to save time at the berth but the report was evidently “advisory to master” and the tribunal had no difficulty disregarding the contention that the vessel was off-hire from 2 October highlighting that the language used in the report was not a language of a report with consequences.

This was the easy part. Two further contentions of the charters, however, required the tribunal to engage in a more analytical legal discussion.

1. The charterers pointed out that if the holds had been clean, the vessel would have been at a berth at an earlier date (at 11.20 on 9 October) whereas the vessel on facts managed to berth on 18 October (at 1605).  On that basis, the charterers were claiming damages for the delay in addition to the vessel being off-hire until 12 October. Their claim was US$ 39,062.50 (hire based on the rate of US$ 6,250 per day) from the time when the holds were found at an acceptable state by the surveyor (at 1010 on 12 October) until the vessel berthed at 1605 on 18 October. 

This is an interesting debate especially given that there was certainly a causal link between the delay in berthing and the failure to pass the inspection. However, from the contract law perspective the key issue is whether the remedy stipulated in the contract (here the “off-hire remedy”) allows any other remedy than deduction from hire for the period of time lost. The tribunal found that cl 49 was clear in setting out the consequences of the vessel’s holds being rejected by the charterers’ surveyor: namely the vessel would be off-hire from the time of failure until she passed a subsequent survey. This precludes any further remedy being awarded to the charterers (an application of the principle that “specific remedy” displaces the general one). Furthermore, the fact that cl 56 of the charterparty conferred the option on the charterer to add any off-hire period to the end of the charter term was viewed as a clear indication that the remedy expressly conferred by the charterparty provided a complete code for failure of holds inspection and according to the tribunal this weakened any case for a claim in damages generally. The argument was put in a sophisticated manner but it was essentially an attempt to bypass the established rule that to claim additional damages on the top of off-hire, one needs to show separate breach of the charterparty. The tribunal, correctly in the view of the author, refused to alter this well-established principle.

• The second argument put forward by the charterers was an interesting one too. The charterparty contained a clause concerning the rate of hire. Clause 4 provided that the hire would be “at the rate of US$ 6,250 per day pro-rata including the overtime for the first 55 days and US$ 12,000 per day thereafter.”

The chartered vessel was delivered to service at 0900 of 24 September and re-delivered at 0430 on 30 November. Given that the off-hire at the first port occurred during the first 55 days of the hire period, the owners calculated off-hire at the rate of US$ 6,250 per day. However, the charterers claimed that they were entitled to damages as they were required to pay hire at in increased rate of US$ 12,000 per day after the first 55 days of the charter period had expired- essentially they were claiming the differential between the basic hire rate and higher hire rate for the time from when the vessel would have berthed at 1120 on 9 October until 1605 on 18 October when she in fact berthed (US$ 47,138.50).

The tribunal was firmly of the view that this argument was reliant on the construction of the language used in cl. 4 of the charterparty. On that premise, it concluded that the charterers would have had a strong case had cl 4 made specific reference to “on hire days”. If it had,  this would have possibly implied that the increased rate should have applied after the off-hire period added to the time which was the threshold for higher hire rate. However, as this was not the case, there was no reason to look beyond the plain meaning of the term “the first 55 days”, and the manner in which the owners dealt with the off-hire at the first loading port correctly reflected the terms of the charterparty.    

There is a message for charterers here especially if they agree to a hire clause that introduce a higher rate after a period of time. In those instances, if they do not wish the hire deduction to be made at the lower rate in a case when the vessel is redelivered after the threshold for higher hire is passed (for loss of time occurring earlier during the charterparty), they need to say so explicitly in the charterparty. Most charterparties used in practice do not say so!