Author: Professor Simon Baughen

Professor Simon Baughen was appointed as Professor of Shipping Law in September 2013 (previously Reader at the University of Bristol Law School). Simon Baughen studied law at Oxford and practised in maritime law for several years before joining academia. His research interests lie mainly in the field of shipping law, but also include the law of trusts and the environmental law implications of the activities of multinational corporations in the developing world. Simon's book on Shipping Law, has run to seven editions (soon to be eight) and is already well-known to academics and students alike as by far the most learned and approachable work on the subject. Furthermore, he is now the author of the very well-established practitioner's work Summerskill on Laytime. He has an extensive list of publications to his name, including International Trade and the Protection of the Environment, and Human Rights and Corporate Wrongs - Closing the Governance Gap. He has also written and taught extensively on commercial law, trusts and environmental law. Simon is a member of the Institute of International Shipping and Trade Law, a University Research Centre within the School of Law, and he currently teaches at Swansea on the LLM in:Carriage of Goods by Sea, Land and Air; Charterparties Law and Practice; International Corporate Governance.

Coming soon to the UK Supreme Court, and not coming.

UKSC 2022/0009 Herculito Maritime Ltd and others (Respondents) v Gunvor International BV and others (Appellants) “The Polar”      

What is the proper interpretation of a charter agreement and bills of landing (sic) for a vessel, in respect of losses arising out the seizure of the vessel by pirates.

The Court of Appeal decision in December 2021 is noted here. https://iistl.blog/category/admiralty-law-2/general-average/

UKSC 2022/0064       R (on the application of Finch on behalf of the Weald Action Group) (Appellant) v Surrey County Council and others (Respondents)    

Under Directive 2011/92 EU of the European Parliament and of the Council and the Town and Country Planning (Environmental Impact Assessment) Regulations 2017, was it unlawful for the Council not to require the environmental impact assessment for a project of crude oil extraction for commercial purposes to include an assessment of the impacts of downstream greenhouse gas emissions resulting from the eventual use of the refined products of the extracted oil?

Hearing on 21 June 2023

The case raises similar issues on scope 3 emissions to that in Greenpeace Ltd v (1) Secretary of State for Business, Energy and Industrial Strategy and (2) the Oil and Gas Authority; and Uplift v (1) SSBEIS and (2) the OGA (North Sea oil and gas licensing)

On 26 April 2023 permission was granted to proceed with a Judicial Review of the Government’s decision to launch a new licensing oil and gas round, without taking into account the environmental effects of consuming the oil and gas to be extracted. In the new licensing round fossil fuel companies have submitted submitting more than 100 licences to explore for new oil and gas.

And not coming,

The hearing was fixed for 19/20 June but it was announced earlier this week that the case has now settled. https://www.quadrantchambers.com/news/settlement-reached-eternal-bliss

UKSC 2021/0231       Priminds Shipping (HK) Co Ltd (Respondent) v K Line PTE Ltd (Appellant) The Eternal Bliss    

Whether the Charterers are liable to compensate or indemnify the Owners for the cost of settling the cargo claim by way of (a) damages for the Charterers’ breach of contract in not completing discharge within the permitted laytime; and/or (b) an indemnity in respect of the consequences of complying with the Charterers’ orders to load, carry and discharge the cargo.

The answer given by the Court of Appeal was ‘no’. This is now definitive.

The ‘Ever Given’ salvage claim. Contract, or Salvage under 1989 Convention and/or common law?

Two years ago the ‘Ever Given’ threatened to become the ‘Ever Stuck’ in the Suez Canal. By the time ‘Ever Given’ refloated, SMIT had a team on board (with onshore support from Holland), and two chartered tugs, ALP Guard and Carlo Magno, contributing to the salvage effort. Whether SMIT concluded a contract with the owners for their services was the preliminary issue that came before Andrew Baker J in Smit Salvage B.V v Luster Maritime S.A.. [2023] EWHC 697 (Admlty). If the answer was ‘yes’, no salvage claim would lie, only a claim under the contract. If the answer was ‘no’ Smit would be able to claim salvage under the terms of the International Convention on Salvage 1989 and/or at common law.

The owners’ case was that the following exchange of emails on 26 March 2021 resulted in the conclusion of a contract in that consensus ad idem as to all essential terms was created, with a mutual intention, notwithstanding a mutual intention to agree (and sign) more detailed terms, by the following exchange of emails that morning (UTC):

Email (i)

At 11:35 UTC, from Captain Saumitr Sen on behalf of WK Webster & Co Ltd (‘WKW’), a claims manager acting as agent appointed by owners, to Mr Richard Janssen (Managing Director of SMIT) and Mr Jody Sheilds (also of SMIT), copied to various others, stating:

“We refer to our telephone conversation subsequent to my previous email and my further conversation with Japan. As agreed over phone, I am please to confirm as below on behalf of Owners of Ever Given.

Owners agree to the following :

The tugs, dredgers, equipment engaged by SCA and their subsequent salvage claim are separate to the Smit’s offer of assistance.

a) SMIT personnel and equipment to be paid on Scopic 2020 rates

b) Any hired personnel and equipment, out of pocket expenses of SMIT to be paid on scopic 2020 rate + 15% uplift

c) Refloatation Bonus of 35% of Gross invoice value irrespective of the type of assistance rendered.

ci) Refloatation bonus not to be calculated on amounts chargeable for quarantine or isolation waiting period.

cii) Refloatation bonus to SMIT will be applicable if refloatation attempt by SCA on 26 March 2021 is unsuccessful.

We look forward to your confirmation. We can then start ironing out the wreck hire draft agreement so that the same can be signed at the earliest.”

Email (ii)

At 11:40 UTC, from Mr Janssen to Capt Sen, cc. Mr Sheilds and the others, in

reply, stating:

“Thank you Captain and confirmed which is very much appreciated. I shall inform our teams accordingly and we shall follow up with the drafting of the contract upon receipt of your/your client’s feedback to our draft as sent last night.”

Andrew Baker J found that there would be a contract between the parties if and only if they so communicated with each other as to make it appear, judged objectively, that they had reached agreement upon terms sufficient in law to constitute a contract and that they intended to be bound by those terms whether or not they agreed any more detailed set of contract terms. So long as the parties have agreed enough to be capable of constituting a contract, there was no rule of law that if terms of economic or other significance have not been finalised, the parties cannot have intended to be bound

The contract formation issue was whether there was an intention to be bound. The parties did not state in terms whether the intention was to be bound there and then, or only upon agreeing (if they did) a detailed set of contract terms, or only upon signing a written contract having first agreed such terms. Therefore, contractual intent fell to be determined by considering what was reasonably conveyed by the parties to each other about that, by the way they expressed themselves and by their conduct visible to the other, considered as a whole, at least up to and including the moment at which it is alleged that a contract was concluded. An intention to be bound cannot be found where it is not the only reasonable connotation of the parties’ exchanges and conduct, taken as a whole. Exchanges and conduct not consistent only with an intention to be bound are ambiguous, and a contract can only be found in and constructed from unambiguous communication

Andrew Baker J rejected the argument put forward by Mr Jacobs KC, based on previous salvage decisions in The Athena [2023] EWHC 697 (Admlty) and The Kurnia Dewi  [2023] EWHC 697 (Admlty) “that it is common practice in the salvage industry for main terms (remuneration/type of contract) to be agreed and then for a broader contract on WRECKHIRE or other terms to be agreed. The latter contract supersedes the previous contract, which is entered into at a time of urgency and when there is no time for a full agreement to be reached.” They were simply decisions on their own facts, applying to those facts the basic principle stated as to whether there had been an intention to be bound.

The email exchange on 26 March 2021 read objectively and in context, showed that Capt Sen and Mr Janssen did not purport to conclude a contract between SMIT, or any of the other claimants, and the defendants or either of them. The exchange showed an agreement reached on the remuneration terms for a contract that was being negotiated. But the parties made it clear to each other that they were still negotiating, indeed the detailed work of negotiating the contract terms by which they would be bound. They did not communicate to each other an intention to be bound in the absence of completing that work of negotiating and agreeing a detailed set of contract terms. That further work was not completed, as a counter-proposal on detailed terms later sent by Capt Sen put the parties some considerable distance apart, and that gap was never closed.

Therefore, no contract was concluded between SMIT and the owners.

International Shipping and the EU Emissions Trading Scheme. Evasion and ‘pass-through’.

On 30 December 2022 we recorded the provisional agreement reached by the Council and the Parliament on 18 December 2022 regarding amendments to the Commission’s proposed Directive amending the  2003 ETS Directive. The full text of the agreement was released on 8 February 2023. Two additional amendments are notable.

First, as regards possible evasion of the ETS by transhipping containers outside EU countries. Article 3(g) (1) (a) provides.

“The Commission shall by 31 December 2023 by means of implementing acts establish a list of the neighbouring container transhipment ports and update this list before 31 December every two years thereafter.

Those implementing acts shall list neighbouring container transhipment ports where the share of transhipment of containers, measured in twenty-foot equivalent unit, exceeds 65 % of the total container traffic of that port during the most recent twelve-month period for which relevant data are available located outside the Union but less than 300 nautical miles of a port under the jurisdiction of a Member State. For the purpose of this paragraph containers shall be considered as transhipped when they are unloaded from a ship to the port for the sole purpose of loading them on another ship. The list shall not include ports located in a third country that effectively apply measures equivalent to this Directive.”

Article 3 wa defines port of call to exclude various activities including “stops of containerships in a neighbouring container transhipment port listed in the implementing act adopted pursuant to Article 3g(1a).”

Second, Article 3 gaa provides for a mandatory pass-through of ETS costs borne by the shipowner or demise charterer “when the ultimate responsibility for the purchase of the fuel and/or the operation of the ship is assumed by a different entity than the shipping company pursuant to a contractual arrangement.”

Operation of the ship means “determining the cargo carried and/or the route and the speed of the ship” and so clearly encompasses time charterers. Member States are required to “take the necessary measures to ensure that when the ultimate responsibility for the purchase of the fuel and/or the operation of the ship is assumed by a different entity than the shipping company pursuant to a contractual arrangement, the shipping company is entitled to reimbursement from that entity for the costs arising from the surrender of allowances.”

The Preamble states “While such a mechanism of reimbursement could be subject to a contractual arrangement, Member States should, to reduce administrative costs, not be obliged to ensure or control the existence of such contracts but should instead provide, in national law, a statutory entitlement for the shipping company to be reimbursed and the corresponding access to justice to enforce that entitlement.” 

The pass-through provision states that “Member States shall ensure that shipping companies under their responsibility comply with their obligations to surrender allowances, notwithstanding their entitlement to be reimbursed by the commercial operators for the costs arising from the surrender.”

One can foresee interesting situations where a shipowner under a time charter which does not provide for the pass through of such costs, obtains an order from the courts of a Member State that the time charterer should reimburse it for those costs, and the time charterer declines to do so.

The amendments to the 2003 ETS Directive need to be adopted, and then transposed by Member States by the end of 2023 if they are to become operative as of 1 January 2024 as envisaged. Adoption was expected to occur in the first quarter of 2023. We have now entered the second quarter of 2023.

Text agreed new UN High Seas Agreement

Draft agreement under the United Nations Convention on the Law of the Sea on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction

The text of the Agreement, which takes the form of a new Implementing Agreement under the United Nations Convention on the Law of the Sea (UNCLOS) to protect and sustainably use the resources of these areas, was agreed on 4 March 2023. The Agreement establishes marine protected areas in the high seas which will help achieve the global goal of protecting 30% of the world’s oceans – set out in the UN’s Global Biodiversity Framework agreed in December 2022 in Montreal at the Convention on Biological Diversity  when countries pledged to protect 30% of ocean, land and coastal areas by 2030. These areas will put limits on how much fishing can take place, the routes of shipping lanes and exploration activities like deep sea mining – when minerals are taken from a sea bed 200m or more below the surface. the treaty will also require assessing the impact of economic activities on high seas biodiversity. Developing countries will be supported in their participationin and implementation of the new treaty by a strong capacity-building and marine technology transfer component, funded from a variety of public and private sources and by an equitable mechanism for sharing the potential benefits of marine genetic resources.

State parties are to apply the Agreement’s new environmental safeguards to activities “within their jurisdiction or control” and will need to ensure that high seas activities falling within their jurisdiction or control comply with the new requirements of (inter alia) environmental impact assessments, area-based management tools and marine protected areas under the Agreement. The Agreement does not define the concept of jurisdiction or control.

The Agreement will enter into force once 60 States have ratified. 

Unsafe ports and negligent pilots.

London Arbitration 2/23 involved a claim for breach of the safe port warranty in an amended NYPE 1981 form,  time charter trip to China. The vessel grounded while under pilotage in the port of Chaozhou, proceeding to her discharge berth, and suffered damage to her port side hull structure, resulting in water ingress. The owners claimed that, in breach of the charterparty, the port was unsafe and claimed  the cost of repairs and associated damages in an amount of US$1,158,559.59 plus interest and costs.

The parties accepted that the vessel grounded outside the channel in charted shoal water and that the pilot would have known of the location of the charted shoal water. At the time of leaving the load port, the vessel did not have adequate charts onboard to create a proper passage plan for the discharge port. The tribunal found that the plan must have been defective as it could not have been based on the appropriate channel data at the time the vessel departed the loading port.

The master should have made efforts to obtain the appropriate harbour chart, Chinese MSA Chart 81102. It was ordinary good practice to navigate on the largest scale chart available. The pilot could have taken a copy onboard or a photograph of the chart could have been emailed to the vessel. The tribunal found that the master was negligent in failing to obtain a copy of the chart. The master was therefore not aware that the vessel was standing into danger during her final approach to, and manoeuvres within, Chaozhou harbour and, consequently, failed to query the pilot’s actions or attempt any direct action to prevent the vessel grounding. In failing to effectively monitor the pilot’s conduct of the vessel the master was negligent.

The tribunal concluded that the pilot was negligent in failing to manoeuvre the vessel such that she remained in the deep-water channel at all times. The tribunal found that the cause of the grounding was the negligent navigation of the vessel during her inbound passage to her discharge berth. However, the deep-water channel was safe for the vessel at the material time. The limits of the channel were marked on appropriate navigational charts and were known to the pilot.

The test for competence was whether the pilot was affected by a disabling lack of skill or knowledge, deriving from inherent lack of ability, lack of adequate training, lack of particular knowledge, or a disinclination to perform the job properly: The Eurasian Dream [2002] 1 Lloyd’s Rep 719 per Creswell J. The tribunal found the pilot to have been negligent in misjudging the turn into the port and failing to take appropriate action to correct his error. It was not persuaded that there was any evidence that he was affected by any of the deficiencies in the test above. It found him to be competent. A one-off mistake such as this by a competent pilot was not a defect in the set-up of the port: The grounding did not result from the vessel being exposed to dangers that could not be avoided by good navigation and seamanship. The vessel could and should have been manoeuvred within the deep-water channel but was not. Nor was the grounding the result of an abnormal occurrence,

The tribunal also found that the vessel was unseaworthy at the beginning of her voyage because she lacked the appropriate chart to prepare a berth-to-berth passage plan that was compliant with IMO Resolution A893(21). The defect was capable of being rectified by the master obtaining the required harbour chart before the vessel commenced her inbound passage to Chaozhou. However, the master made no effort to obtain the required chart and commenced the inbound passage without any knowledge of the limits of the deep-water channel.

There was no evidence that the owners exercised due diligence to ensure that the vessel had a compliant passage plan before she departed for Chaozhou. However, the grounding was caused by the vessel’s negligent navigation, specifically the pilot’s failure to ensure that the vessel turned at the required rate to remain in the deep-water channel.

The owners’ claim for loss and damage suffered as a result of the grounding failed.

EU Parliament and Council reach agreement on FuelEU Maritime Regulation

Early on the morning of 23 March the European Parliament and the Council agreed on FuelMaritime EU– a new EU regulation ensuring that the greenhouse gas intensity of fuels used by the shipping sector will gradually decrease over time, by 2% in 2025 to as much as 80% by 2050. This measure increases the maritime transport sector’s contribution to reaching the EU-wide target of reducing net greenhouse gas emissions by at least 55% by 2030.

FuelEU Maritime will set maximum limits on the yearly greenhouse gas intensity of the energy used by a ship, with targets will becoming increasingly ambitious over time to stimulate and reflect the expected developments in technology and the increased production of renewable and low-carbon fuels. The targets cover not only CO2, but also methane and nitrous oxide emissions over the full lifecycle of the fuels.

Additionally there is an additional zero-emission requirement at berth, mandating the use of on-shore power supply (OPS) or alternative zero-emission technologies in ports by passenger ships and containerships, with a view to mitigating air pollution emissions in ports.

The Regulation takes a goal-based and technology-neutral approach, allowing for innovation and the development of new fuel technologies to meet future needs, and offering operators the freedom to decide which to use based on ship-specific or operation-specific profiles. The Regulation also provides for a voluntary pooling mechanism under which ships will be allowed to pool their compliance balance with one or more other ships, thereby making it the pool as a whole that has to meet the greenhouse gas intensity limits on average.

The political agreement must now be formally adopted, and once this is completed by the European Parliament and the Council, the new rules will be published in the Official Journal of the European Union and enter into force 20 days after publication.

Anti-assignment clauses and subrogation under foreign law

Dassault Aviation SA v Mitsui Sumitomo Insurance Co Ltd [2022] EWHC 3287 (Comm) involved the effect of an anti-assignment clause in a contract on statutory rights of subrogation under an insurance policy subject to Japanese law taken out by one of the parties. Mitsui Bussan Aerospace Co Ltd (“MBA”) and Dassault entered into a sale contract governed by English law under which Dassault would manufacture and deliver to MBA two aircraft and certain related supplies and services for supply to the Japanese Coast Guard. Article 15 of the Sale Contract, titled “Assignment-Transfer”, provided:

“Except for the Warranties defined in Exhibit 4 that shall be transferable to Customer, this Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party and any such assignment, transfer or attempt to assign or transfer any interest or right hereunder shall be null and void without the prior written consent of the other Party.

Notwithstanding the above and subject to a Seller’s prior notice to Buyer, Seller shall have the right to enter into subcontracting arrangements with any third party, for the purpose of the performance of this Contract”

The Sale Contract contained an arbitration agreement providing for arbitration under the ICC rules and for the seat of arbitration to be London.

MBA entered into a contract of insurance with MSI, governed by Japanese law, without seeking Dassault’s consent. The Policy covered the risk of MBA being held liable to the Japanese Coast Guard for late delivery under the Sale Contract. In fact, delivery was delayed and the Japanese Coast Guard claimed liquidated damages for late delivery. MBA claimed that sum from MSI (less a deductible) under the Policy, and MSI accepted that claim and paid MBA in turn.

Article 25 of the Japanese Insurance Law provides:

“An insurer, when the insurer has made an insurance proceeds payment, shall, by operation of law, be subrogated with regard to any claim acquired by the insured due to the occurrence of any damages arising from an insured event (under a non-life insurance policy which covers claims arising due to default or any other reason, such claims shall be included; hereinafter referred to as the ‘insured’s claim’ in this Article), up to the smaller of the amounts listed below:

(i) the amount of the insurance proceeds payment made by the insurer; or

(ii) the amount of the insured’s claim (if the amount set forth in the preceding item falls short of the amount of damages to be compensated, the amount that remains after deducting the amount of the shortfall from the amount of the insured’s claim).”

Article 26 of the Japanese Insurance Law provides: “A contractual provision that is incompatible with the provisions of […] [Article 25] that is unfavourable to an insured shall be void.” However it permits of agreement that an insurer would not be subrogated, as not being “unfavourable to the insured”.

The mechanism of subrogation under Japanese Law is the transfer of rights: the insurer acquires the right to sue in its own name, including the right to initiate proceedings. This was reinforced by Article 35 (1) of the Policy which essentially reproduced Article 25 of the Japanese Insurance Law and provide:

“In the event that the Insured acquires a right to claim for damages or other claim […] as a result of the occurrence of Losses, such claims shall be transferred to [MSI] when [MSI] pays the insurance benefits for said Losses..”

30 April 2021, MSI submitted a request for arbitration under the arbitration agreement in the Sale Contract against Dassault. The Tribunal considered the jurisdictional issue as a preliminary issue. In its Partial Award on jurisdiction by a majority decision, the Tribunal dismissed Dassault’s jurisdictional objection. The Tribunal held that: (i) Article 15 of the Sale Contract did not apply to involuntary assignments and/or assignments by operation of law; (ii) as a matter of Japanese law, the transfer of rights from MBA to MSI occurred by operation to law pursuant to Article 25 of the Japanese Insurance Act. The majority found that, since the transfer occurred by operation of law, Article 15 did not apply to it

On appeal under s.67 of the Arbitration Act 1996 Cockerill J that the effect of Article 15 was that the subrogation to MSI was of no effect and the Tribunal had no jurisdiction to hear its claim against Dassault. So far as the authorities went, there was a presumption that the court should not be prevented from giving effect to such a clause when the transfer is one which is voluntary (in the sense of consented to). The authorities did not justify a conclusion that prohibitions on assignment should not be taken to carve out transfers which occur “by operation of law” in a broad sense. The relevant test was whether the transfer was voluntary in that it was in the power of MBA to prevent the transfer. The answer was that it was. MBA might have chosen not to insure or might have chosen a policy governed by another system of law. It might have excluded the operation of Article 25 instead positively reinforcing it with Article 35 of the Policy. It might have chosen not to make a claim. It was therefore in the power of MBA to comply with the provision. It acted voluntarily or consented to take a step which on a certain contingency would put it in breach of that provision.

MSI pointed out that it was difficult to say that subrogation under English law was acceptable, whereas the subrogation equivalent of another legal system was not. Dassault replied that an English law subrogation does not involve a transfer and there simply is a relevant difference for the purposes of a clause such as this. Secondly, the assumption that there is no problem with English law subrogation might not be a safe one.

This required a consideration of the nature of subrogation in English law. Would the third rule of English law subrogation, that an insurer can pursue a claim in the name of the insured, but not pursuant to a transfer of right, be affected by Article 15 or a clause like it?  Cockerill J was not prepared to decide that Dassault’s argument would probably gain traction based on a fairly slight and somewhat abstract argument and its case must therefore (for present purposes) stand or fall on the basis that English law subrogation would not fall foul of Article 15.

MSI argued that “a question of public policy arises… because the general view of English contractual law is that it’s sensible for parties to obtain insurance and they should not be penalised for doing so“. Cockerill J rejected this because one could not imply into the clause a blanket exception for insurance: it would be contrary to the express words of the contract and it would fail the business efficacy test.

The moral of this tale is that if your contract contains a ban on assignment, you need to take care with taking out insurance under a policy subject to a foreign law. If subrogation under that system of law operates by a direct transfer of rights to the insurer, it will be caught by the ban on assignment in your contract.

Implied term under time charter. Reinspection of holds following initial failure.

Pan Ocean Co Ltd v Daelim Corporation [2023] EWHC 391 (Comm) (24 February 2023)  DL LILAC, involved an appeal under section 69 of the Arbitration Act 1996 heard by Sir Ross Cranston acting as a High Court Judge. The issue of law was:  

“whether there was an implied term of the subject time charter having the effect that where the vessel was off hire under clause 69 after a failed holds inspection and the Master advised that hold cleaning had been completed and called for a reinspection, the charterer was obliged ‘to have the vessel re-inspected without delay’.”

The case involved a time charter trip in early 2017 on an amended NYPE 1993 form to carry a cargo of urea in bulk. Clause 69 was headed “BIMCO Hold Cleaning/Residue Disposal For Time Charter Parties” and provided:

“Vessel’s holds on delivery or on arrival 1st load port to be clean swept/washed down by fresh water and dried so as to receive Charterers intention cargoes in all respects free of salt, rust scale and previous cargo residue to the satisfaction of the independent surveyor.

If vessel fails to pass any holds inspection the vessel to be placed off-hire until the vessel passes the same inspection and any expense/time incurred thereby for Owners account.”

The charterers deducted US$110,765 in hire and US$16,308 in bunkers arising out of the failure of a cargo holds inspection at Jubail (the loading port).  The holds initially failed an inspection between 0700 and 1230 on 16 February 2017 due to the presence of rust, paint flakes and cargo residue. At 14.30 on 19 February 2017 the vessel was ordered off-berth. An hour later the master notified the agents that the vessel had been cleaned and requested a reinspection. At 22.18 the vessel shifted to the inner anchorage and rebirthed at 20.42 on 3 March 2017. At 0700 on 4 March 2017, the holds were reinspected at 11.00 the vessel passed the inspection

The owners contended that it was an implied term of the charter party that the charterers should carry out any reinspection with reasonable diligence and without any undue delay and the charterers were in breach of that implied term because the reinspection took so long to arrange. They argued further that the charterers were not entitled to treat the vessel as off-hire after 1530 on 19 February because any loss of time after then was caused by the charterers’ breach of their obligation to arrange a reinspection with diligence. The owners also referred in their closing submissions to an arbitration report in Lloyd’s Maritime Law Newsletter (“LMLN”) 17/10 “where the clause used was virtually identical to that adopted in the instant  case.

Sir Ross Cranston concluded that the Award could be read in such a way that the Tribunal did in fact apply the correct legal test for implied terms notwithstanding the reference to “reasonable” in paragraph 25 of the Award. In the opening words of paragraph 25 the Tribunal indicated that it was adopting the owners implied term argument, in which their closing submissions had referred to the “need” for an implied term, and that commercially any other interpretation was not sensible – a reference to the necessity and obviousness benchmarks in Lord Neuberger’s judgment in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742.

Any implied term had to oblige both parties to take reasonable steps to cooperate to organise a reinspection without undue delay. That was all that would be required under the test of necessity for an implied term to protect both parties from delay of the other side and would be consistent with clause 69. The Tribunal was wrong in law to find that the vessel was immediately back on hire once the Master had notified the agents on 19 February 2017 that the holds were ready for reinspection. That was inconsistent with clause 69 of the charterparty, and did not accord with the implied term as found by the Tribunal.

What the Tribunal needed to do was to decide by when the reinspection should have been undertaken had there been compliance with the implied obligation to exercise reasonable diligence to have the vessel reinspected without undue delay. The case wasremitted to the arbitrators todecide what could and should have been done by the parties regarding reinspection, whether either party was in breach in this regard, the relevant timescales (e.g., the time within which the reinspection could have been arranged and completed had there been no breach of the implied obligation), and the financial consequences of any breach.

Late redelivery under time charter. Recovering more than allowed under The Achilleas.

In The Achilleas, [2008] UKHL 48, the House of Lords set out a bespoke rule as to what damages could be recovered by a shipowner in respect of the time charterer’s breach in redelivering the vessel late – market value at the time of breach less time charter hire rate for the period from when the vessel should have been redelivered, up to the time of actual redelivery. However, clauses may be inserted in time charters to allow for recovery of additional damages in the event of such a breach. London Arbitration 1/23 involves just such a clause.

The case involved a head time charter and a sub time charter on similar terms with redelivery to be on or before 1 July 2021 in both cases.  Charterers were to give various etas as to the vessel’s redelivery date and port, and clause 119 provided that if an order for a voyage ending after the maximum period were given the owner should have the option

“(i) to refuse the order and require a substitute order allowing timely redelivery of the vessel,ꞏ or

(ii) to perform the order without prejudice to their right to claim damages, including consequential damages, for breach of charter in case of late redelivery of the vessel.

In any event, for the number of days by which the maximum period stipulated in this charter party is exceeded, the Charterers shall pay the prevailing market rate if this is higher than the hire rate agreed in this charter party.”

At the time of fixing the time charterers were aware of the importance of the redelivery date to the owners who were planning to drydock the vessel shortly afterwards as the vessel as due for her special class survey on 6 July, although the parties would also have known that there was some flexibility on dates because the owners would have been able to obtain a short extension of the validity of the class certificates.. Owners intended to obtain a short fixture to get the vessel near to the drydocking port to come into effect after the end of the two time charters on 1 July 2021.

Delays occurred at the discharge port and the follow on fixture owners negotiated on 25 June 2021 was cancelled on 6 July.  Discharge eventually completed on 14 July 2021 and the vessel then sailed to the drydocking shipyard arriving there on 22 July 2021. The owners claimed that the charterers were in breach of charter on the following grounds:

(a) the vessel was redelivered late;

(b) the charterers failed to comply with their undertakings in clause 119;

(c) the charterers breached an implied term that any notices of expected redelivery (i) would be given honestly and in good faith, and (ii) would be based on objectively reasonable grounds following proper inquiries made by the charterers.

Time admitted a breach in redelivering late, that their last orders were illegitimate, and their estimates in the voyage orders had not been reasonable estimates. The charterers admitted that the owners were entitled to damages for late redelivery calculated on the basis of the difference between the market and the charter rate of hire for the 12.508 day overrun period between when the vessel should have been delivered (midnight on 1 July) and when she was actually delivered (12.12 GMT on 14 July).

Owners, however, also claimed hire and bunkers that would have been earned under the cancelled repositioning fixture, for the period for the actual ballast voyage from the time charter discharge port to a place 10 hours from the drydock, being a mid-point between the two redelivery ports under the repositioning fixture.

The tribunal accepted owners’ additional claim. The clause was not limited to breach by way of illegitimate last orders but covered all three breaches claimed by owners. The additional claim fell within the term ‘consequential damages’ in cl.119 which was not limited to damages within the second limb of Hadley v Baxendale (1854) 9 Exch 341 and would include losses on a follow-on fixture. However, this’ construction would not allow recovery of actual losses in excess of market rates. The standard approach to damages for breach of charter applied.

If this construction of cl. 119 were wrong, and ‘consequential losses’ was, as charterers argued, limited to the second limb of Hadley v Baxendale, owners’ claim would still be recoverable on that basis.  

Owners’ alternative claim based on the alleged breach of the obligation to give redelivery notices, which had to be given in good faith and also to be reasonable, was rejected as the tribunal accepted that even if the charterers had given accurate notices the vessel would not have been redelivered earlier.

Covid, off hire and construction of clause requiring owners’ consent to deductions from hire.

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.