Fastfreight Pte Ltd v Bulk Trident Shipping Ltd (Re Arbitration Act 1996) [2023] EWHC 105 (Comm) (24 January 2023) is a case involving off- hire arising out of lengthy COVID related delays off a Chinese discharge port in 2021.
The “Anna Dorothea”, was chartered for a trip time charter for the carriage of a bulk cargo from East Coast, India to China in April 2021 on an amended NYPE 1993 form. The vessel loaded a cargo of iron ore pellets at Visakhapatnam, India for carriage to China, and was ordered by the Charterers to sail to Lanqiao for discharge. It arrived off that port on 4 May 2021 but was not able to obtain a berth. In the event, the cargo was not discharged, and the vessel was not redelivered by the Charterers to the Owners until 28 August 2021.
Except for a period of five days between 22 and 26 May 2021, the Charterers did not pay any hire for the vessel between 4 May and 28 August 2021. They contended that the vessel went off-hire on 4 May 2021 and remained off-hire thereafter on the basis that three crew members had positive rapid lateral flow tests for Covid on 1 May 2021. Owners case was that it was impossible to arrange for PCR testing of those crewmembers, but if they had Covid-19 (lateral low tests not being wholly reliable) they would have recovered by no later than 13 May, as their temperature records for that day and subsequent days showed. The Charterers relied on clause 67 to justify their putting the vessel off hire.
Owners claimed that charterers could not deduct for off hire by virtue of line 146 appended to cl.11 which was headed “Hire Payment” and provided:
“(a) Payment
Payment of Hire shall be made so as to be received by the Owners or their designated payee in cash in to Owners’ bank account in Germany…
(line 146) Notwithstanding of the terms and provisions hereof no deductions from hire may be made for any reason under Clause 17 or otherwise (whether/ or alleged off-hire underperformance, overconsumption or any other cause whatsoever) without the express written agreement of Owners at Owners’ discretion. Charterers are entitled to deduct value of estimated Bunker on redelivery. Deduction from the hire are never allowed except for estimated bunker on redelivery…
Clause 17, headed “Off Hire” stated:
“In the event of loss of time from deficiency and/or default … of officers or crew … or by any other similar cause preventing the full working of the Vessel, the payment of hire and overtime, if any, shall cease for the time thereby lost. Should the Vessel deviate .. during a voyage, contrary to the orders or directions of the Charterers, … the hire is to be suspended from the time of her deviating .. until she is again in the same or equidistant position from the destination and the voyage resumed therefrom. …
If upon the voyage the speed be reduced by defect in, or breakdown of, any part of her hull, machinery or equipment, the time so lost, and the cost of any extra bunkers consumed in consequence thereof, and all extra provide directly related and actually paid expenses (always limited to one shift maximum) expenses [sic] … may be deducted from the hire only after having reached an agreement with the Owners on the figures (costs, times, bunkers). (emphasis added)”
The charterparty also additional clause 67 BIMCO Terms:
“Notwithstanding anything within this charter party, the riders, the recap, and/or the “BIMCO infections or contagious disease clause for time charter parties” and/or its equivalent, in the event any member of the crew or persons (except those on charterers’ behalf) on board the vessel is found to be infected with a highly infectious or contagious disease and the vessel has to (i) deviate, (ii) be quarantined, or (iii) barred from entering any port, all time lost, delays and expenses whatsoever shall be on owners’ account and the vessel shall be off-hire.
…
Owners are fully aware that vessel is fixed for one trip via East Coast India to China.“
The arbitrators made a partial final award of hire in the sum of US$2,147,717.79, without prejudice to the Charterers’ right thereafter to counterclaim the whole or any part of that sum, and reserved jurisdiction accordingly as well as jurisdiction to decide all other undetermined matters that had been referred to them. Three days ago Henshaw J decided to uphold the decision of the arbitrators on an appeal on the following question of law.
“Where a charterparty clause provides that no deductions from hire (including for off-hire or alleged off-hire) may be made without the shipowner’s consent: Is non-payment of hire a ‘deduction’ if the Vessel is off hire at the instalment date?”
Henshaw J noted the importance of the opening words of line 146 “Notwithstanding of the terms and provisions hereof”. Line 146 singled out cl. 17, the off hire provision, as one which it qualifies. Clause 17 was not primarily directed at allowing the offsetting of overpaid hire but was mainly directed at the prior question of whether hire accrues or ceases to accrue at all. The final part of cl.17 was specifically directed at the making of deductions in the sense of subtractions from hire payments but that portion of the clause clearly included its own bespoke provision requiring the Owners’ written agreement. Read as a whole and in context, the restriction on “deductions” in line 146 applied to any exercise of rights that would otherwise arise under or by reason of cl 17 to reduce (wholly or partly) a hire payment based on the vessel being off hire.
The use of the words “whether/ or alleged off hire” showed that line 146 was designed to cater for situations where a dispute exists about whether the vessel is off hire or not, and to address the situation by requiring the hire to be paid, leaving the argument for later. The Owners did not have an unfettered discretion when deciding whether or not to agree to an alleged off-hire: their discretion had to be exercised for a contractually appropriate purpose (so there has to be a genuine dispute about the deduction) and rationally. Under clause 23 the Charterers had a cross-claim in debt for any overpaid hire which was secured by a lien on the vessel. The arbitrators were correct to reject Charterers’ submission, that line 146 applied only to set-offs and cross-claims.
The conclusion as to the construction of line 146 meant that it was not necessary to consider the effect of the Bingham J’s decision in The Lutetian [1982] 2 Lloyd’s Rep. 140 that where the vessel is off hire at the date on which a hire instalment would otherwise fall due, the effect of what is now cl. 17 of the charterparty is that the obligation to pay hire is suspended. The Lutetian clearly could not be dispositive of the present case, because it contained no equivalent to line 146.
Comment.
Essentially the additional clause in line 146 reverses the position with claims for off hire. The usual position with a time charter is that a charterer may make deductions on an interim basis only where it can establish that they were made both in good faith and on reasonable grounds at the time of deduction (those requirements applying whether the deduction is made pursuant to equitable set-off or an express term of the charterparty). This is reversed with line 146. Hire continues to be paid, unless owners consent to the deduction for the claimed off hire, with charterers then having to claim overpaid hire from owners. This discretion has to be made for a contractually appropriate purpose -there must be a genuine dispute about the deduction – and rationally. For charterers it is a case of “pay now, claim back later.”
COVID may have provided the occasion for this decision, but there is no decision as to whether charterers will be able to claim back hire for this period as off-hire. This will involve construing how cl.67 will operate in circumstances where the port authority refuse to allow the vessel into berth for a substantial period of time during which it is clear that the affected crew members must no longer be infected.
But that is a matter for another day.
