Category: Charterparties

Claims against time charterers for damage to ship, caused by damage to cargo, not subject to limitation under 1976 LLMC.

In  July 2012 while under charter to MSC from the owner Conti, the MSC Flaminia suffered an explosion which killed five of her crew, and one crew member was never found.  Hundreds of containers were destroyed and extensive damage was caused to the ship. The explosion was caused by auto-polymerisation of the contents of one or more of three tank containers laden with 80% divinylbenzene (‘DVB’) which  had been shipped at New Orleans on 1 July 2012. In a series of arbitration awards MSC was held liable to Conti in respect of the casualty, and Conti was awarded damages of c.US$200 million on a quantification by the arbitrators of its recoverable losses.

In June 2020 MSC commenced an Admiralty limitation claim under the 1976 LLMC as amended by the 1996 Protocol which came before Andrew Baker J who gave judgment at the start of this month, MSC Mediterranean Shipping Company SA v Stolt Tank Containers BV & Ors [2022] EWHC 2746 (Admlty) (02 November 2022)

There were three defendants two Stolt companies (the first and second defendants, ‘Stolt’), Stolt having been the road carrier of the DVB tank containers to New Orleans, and vis-à-vis MSC the shippers of those containers onto MSC Flaminia, claimants other than Stolt in a claim brought by cargo claimants whose bill of lading claims against MSC were subject to English law and jurisdiction, and Conti, the shipowner.

Conti’s claims included ship repair costs, payments to public authorities in Belgium, France, the UK and Germany following the casualty and also the costs of and associated with removing the waste from the ship. Could MSC limit in respect of these claims? This involved a question of whether the effect of the phrase ‘consequential loss’ in Article 2(1)(a). Where losses caused by damage to the cargo were losses which Conti was required to incur in order to repair the ship, could Conti’s claims in respect of those losses be characterised as claims in respect of damage to the ship or consequential losses resulting from such damage and if so, did it follow that those claims could not be limited under Article 2(1)(a)?

Claims for consequential loss had been found to be limitable in The Aegean Sea  and The APK Sydney. Andrew Baker J, considered that the lost profits claims in The Aegean Sea, were claims for consequential loss resulting from the environmental damage, and the lost profits claims in The APL Sydney, had been claims for consequential loss resulting from the pipeline damage, where the relevant property damage occurred in direct connection with the operation of the ship in question, and was not damage to the ship herself. Those claims as made against the owner were limitable, and similarly the claim by the owner to pass those claims on to the charterer.

However that was not the case in the instant case, which involved claims in respect of damage to the ship which were not limitable, as held by the Court of Appeal in The CMA Djakarta , approved obiter by the Supreme Court in The Ocean Victory. The fact that it could be said, in point of fact, that all the damage to the ship can be traced back, by a chain of causation, to loss of or damage to the DVB that exploded, did not mean that a claim by Conti for compensation for damage to the ship was a claim in respect of loss of or damage to the DVB (or consequential loss resulting therefrom). The causal connection on the facts did not turn a claim for damaging the ship into a cargo claim. Conti’s claim against MSC, established in the arbitration, did not seek to enforce a right of redress in respect of loss of or damage to cargo, but rather a right of redress in respect of the risk of harm to the ship that had been posed by the cargo, and the damage the ship suffered when that risk eventuated

MSC also claimed that costs incurred by Conti related to the removal or destruction of cargo waste, burned or unburned were limitable under Article 2(1)(e), as claims “in respect of the removal, destruction or the rendering harmless of the cargo of the ship”. This claim was also found not to be limitable. The ordinary meaning of Article 2.1(d)/(e), is that tonnage limitation is to apply in respect of liabilities such as might be incurred by an owner for casualty intervention or aftermath liabilities of the kinds indicated, i.e. wreck removal (etc.) (Article 2.1(d)) and cargo removal, destruction or neutralisation (Article 2.1(e)). Conti’s claim for reimbursement of or damages in respect of the cost of cargo handling due to MSC’s breach in loading dangerous cargo was not a claim in respect of the removal, destruction or rendering harmless of cargo within Article 2.1(e). Nor could the claims be limitable to the extent that the relevant costs related to the removal or destruction of cargo waste, burned or unburned as they were to be characterised as claims in respect of damage to the ship or for consequential losses resulting from such damage.

As regards Conti’s costs cost incurred in disposing of the firefighting water these were not limitable under Article 2.1(f) as the claim was not distinct from the non-limitable category of claims in respect of the loss of or damage to the ship.

Effectively, all Conti’s claims related to damage to the ship and the fact that had occurred due to the damage to the cargo in the explosion did not mean that the claim was one relating to damage to cargo. All the claims were claims for damage to the ship and were not subject to limitation.

Charters, subjects and arbitrators’ jurisdiction

Hopeless appeals sometimes clear the air. One such was today’s appeal by the claimants in the arbitration decision of The Newcastle Express [2022] EWCA Civ 1555.

Owners of a largish bulker fixed her for a voyage carrying coal from Australia to China. The charter was on the terms of an accepted proforma containing a London arbitration clause, and subject to Rightship approval. The recap, however, contained the words SUB SHIPPER/RECEIVERS APPROVAL, and no sub was ever lifted. The charterers declined to accept the vessel, alleging that Rightship approval had not been obtained on time; the owners alleged wrongful repudiation, and claimed arbitration.

The charterers argued that because the necessary approvals had not been forthcoming no agreement of any kind had been concluded, and politely sat out the owners’ proceedings. The arbitration tribunal decided that there had been a concluded contract; that it therefore had jurisdiction; and that the owners were entitled to something over $280,000 in damages. On an appeal under ss.67 and 69 of the Arbitration Act Jacobs J allowed the charterers’ s.67 appeal, holding that there had never been either a contract or an agreement to arbitrate anything; hence neither the charter nor the arbitration bound the charterers. For good measure he also said that he would have allowed a s.69 appeal on the law.

The owners unsuccessfully appealed to the Court of Appeal. They argued first, one suspects without much enthusiasm, that the “sub shipper/receivers approval” term was not a precondition of there being any contract, but instead acknowledged the presence of an agreement and merely qualified the duty to perform it. The Court of Appeal had little difficulty sweeping this point aside. Terms fairly clearly giving a person the right to disapprove a transaction on commercial grounds, as here, were fairly consistently construed in the same way as other “subject to contract” terms: and this one was clearly intended to allow either party to walk away without penalty.

This left the separability point: why not invoke the “one-stop-shop” preference adumbrated in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, [2007] 4 All ER 951 and engage in a bit of constructive interpretation, so as to treat the parties as having agreed that even if the main agreement hadn’t been concluded they had agreed on any dispute, including whether the agreement was enforceable, being decided by arbitrators? To this, however, there was a simple answer. Harbour Assurance v Kansa Insurance Co [1993] QB 701 before the 1996 Act, and the post-1996 Fiona Trust case itself, showed that this chicken wouldn’t fight. It was all very well to separate out the arbitration agreement in cases where the parties had seemingly agreed but there was some alleged vitiating factor, such as mistake or duress, in their agreement. But here the very point at issue was whether there had been agreement on anything in the first place: if there had not, any arbitration provision fell with the agreement itself. Game set and match, therefore, to the charterers.

This must all be right. Admittedly it does leave claimants in a quandary when faced with defendants who, like the charterers in this case, deny that parties ever reached agreement and refuse to arbitrate. Do they have to go to the expense of an arbitration in the full knowledge that they may then have to traverse the same ground again in a court to prove that the arbitrator had jurisdiction to decide in their favour?

The solution suggested by Males LJ at [86], an agreement ad hoc to arbitrate the jurisdiction point, is certainly useful, though it requires agreement from the other party. A further possibility might be to amend s.32 of the Act. Currently this allows an application to the court to determine jurisdiction, but only with the agreement either of both parties or of the tribunal and the court. There is something to be said for relaxing this requirement where one party refuses to take part in the proceedings at all, and saying that in such a case either party can demand a court determination as of right. Ironically the threat to force on the other party a quick trip to the Commercial Court, with the extra costs that involves, might act as a wholesome encouragement to agree to the one-stop-shop businesspeople are always said to want and which Males LJ advocates.

The Law Commission, as it providentially happens, is currently looking at s.67 and s.32, and has a consultation paper out (in which it tentatively suggests, among other things, that a s.67 appeal should not be a rehearing except where the other party plays no part in the arbitration). This is perhaps another idea that could be discreetly fed to it. You have till 15 December, when the consultation closes, to get any proposals together.

Running of laytime. Charterers’ order owners not to permit cargo sampling or to berth/discharge.

London Arbitration 31/22 is another reminder that once laytime starts it runs continuously unless interrupted by a laytime exception or a laytime definition or through delay due to the fault of the ship owner.

The vessel was chartered on an amended Gencon 94 form to carry wheat from Russia to Turkey. On Friday 17 September the vessel tendered NOR and was ordered by the harbour master to remain at anchor pending authorisation being given for cargo samples to be taken and analysed. The charterers’ agent then told owners’ operations manager not to send cargo documents to the discharge port agents and not to allow sampling, berthing and discharging as the receiver had not yet paid for the cargo. Eventually charterers permitted sampling and discharge on 29 September and discharge completed on 2 October.

As well as the laytime provisions, under which time would have started to run on 20 September, the voyage charter in question had two separate provisions dealing with time lost, and the question was which applied in the circumstances attending the vessel’s delay at the discharge port.

These two provisions were:

“TIME LOST WAITING FOR CARGO ANALYSES AND/OR LABORATORY TESTING AND/OR IMPORT AND/OR EXPORT FORMALITIES IF ANY TO COUNT AS LAYTIME OR TIME ON DEMURRAGE W/O WEATHER INTERRUPTIONS AND/OR ANY EXCEPTIONS.” (Provision 1.)

“TIME LOST DUE TO CHARTERERS’ INSTRUCTIONS AND/OR FAULT TO BE REIMBURSED BY CHARTERERS AS DAMAGES FOR DETENTION.” (Provision 2.)

The owners claimed damages for detention at the demurrage rate under Provision 2 for the period from tender of NOR on 17 September until 29 September when the charterers authorised the taking of samples. The tribunal held that this claim must fail because the time lost waiting for cargo sampling clearly fell under the express terms of Provision 1.  The arbitrator found that time lost on arrival was due to the failure by the charterers to authorise/arrange for cargo samples to be taken, a problem that was caused by lack of payment for the cargo which fell within Provision 1. Provisions 1 and 2 appeared consecutively in the fixture recap and the parties could not have intended there to be any overlap between them, and time lost for reasons covered in Provision 1 could not come within the time lost in Provision 2.

Had the arbitrator found that Provision 2 applied, he would have been inclined to accept charterers’ argument that laytime would have started on 29 September and demurrage would have been unlikely to have accrued. Therefore, the arbitrator might have accepted that, given the evidence of lower demurrage rates in similar charters, damages for detention up to 29 September would have been assessed at a rate lower than the charter demurrage rate.

The owners also presented two alternative laytime statements and the arbitrator held that their second was correct. Under this laytime began at 08.00 on Monday 20 September and the vessel went on demurrage from 13.30 on 23 September until discharging was completed at 17.00 on Saturday 2 October.

The charterers argued that “cargo analyses and laboratory testing” did not include “cargo sampling” but the arbitrator considered that the wording in Provision 1 covered any delay in the import formalities after arrival at the discharge port, including the charterers authorising the taking of samples, analysis, communication of the results and allocation of a berth.

The arbitrator also rejected charterers’ claims that time did not count during ‘port congestion’ nor for ‘weather interruption’, alternatively was suspended by duty pilot due to bad weather. Time lost on arrival was due to the failure by the charterers to authorise/arrange for cargo samples to be taken, a problem that was caused by lack of payment for the cargo which came within Provision 1 and the charterers were wrong to argue that congestion was a circumstance obstructing the sampling/berthing/discharging, which was beyond their control. Once a valid NOR was tendered and took effect, laytime ran continuously against the laytime allowed. Congestion was therefore a charterers’ risk.

PAPERLESS TRADE: ANOTHER STEP FURTHER

Charles Darwin had a point. It was not, he said, the strongest of the species that survived, nor the most intelligent, but that most adaptable to change.  So too with law and digital transformation. The government recognises this well. As G7 President, the UK has been actively leading the process to achieve the legal environment for the full digitisation of trade documents. It has now put its money where its mouth is, with its swift introduction in the Lords (on 12 October, only five months after it appeared) of the Law Commission’s draft Electronic Trade Documents Bill.  

The Bill is the outcome of consultations and a later report on how to achieve the digitisation of trade documents and thereby enhance paperless commerce. It aims to cement the legal recognition of electronic trade documents, including most importantly bills of lading, mate’s receipts, ship’s delivery orders, warehouse receipts, marine insurance policies and cargo insurance certificates. (It also includes provisions dealing with commercial paper such as bills of exchange and promissory notes, though these today are a good deal less important.)

Quite right too. Digitisation is an inevitable part of today’s global economy, with big data and cloud-based computing the driving force of industry and its supply chains and the smooth running of trade dependent not only on commercial operations but also to a great extent on the instantaneous turnaround and exchange of the relevant documents. Yet a huge number of the underlying processes and operations still rely “on practices developed by merchants hundreds of years ago.” This matters for us: under the latest statistics from the Department of Trade, international trade is worth around £1.266 trillion annually to the UK.

The problem arises in particular with the paper documentation traditionally used for proving shipment of the goods and their quality, and for their handover while in transit. Pre-eminent among these are bills of lading which not only act as receipts and furnish parties with  significant data about the goods, but also serve as documents of title. The problem is a big one: the Digital Container Shipping Association has estimated that ocean carriers issued 16 million original bills of lading in 2020, more than 99% in paper form, quite apart from the myriad other documents that accompany goods in transit. The exercise in paper-shuffling that this involves is mind-blowing; its threat to the smooth operation of commerce was thrown into stark relief by COVID-19 lockdowns that forced the paper-shufflers to be sent home.  No wonder this accelerated digitisation across the world. As the Law Commission observed, it was partly in response to the complexities brought by the pandemic that the International Chamber of Commerce asked governments to take immediate steps remove legal requirements for hard-copy trade documentation, and to consider longer-term plans for establishing legal frameworks applicable to electronic documents.

The Bill is commendably brief, consisting of only seven clauses. It starts (cl.1) with definitions of “paper trade document” and “qualifying electronic document” before presenting a non-exhaustive list of trade documents affected by it (excluding some more exotic instruments subject to the Uncertificated Securities Regulations 2001, and curiosities such as bearer bonds). Further provisions relate to what is to be regarded as possession, transfer and indorsement of electronic documents (cl.3), and deal with the change of a paper form to an electronic one or vice versa (cl.4).

The nub of the problem is, of course, possession: in English law you cannot in any real sense “possess” a mere stream of electrons. Therefore, in order for an electronic trade document to have similar effects and functionality as its paper equivalent, the Bill in cl.2 lays down gateway criteria. These consist of content requirements, and stipulations about the reliability of the underlying digital system, the “integrity” of an electronic trade document as regards originality and authenticity, the possibility of exclusive control, divestibility of that control, and the reliable identification of the persons in control of a document at any time.

The Commission were rightly aware of the possible impact of the latest innovations and emergent technologies brought by the fourth industrial revolution. In Appendix 6 to its report, it assessed the use of distributed ledger technology (“DLT”) to support trade documents in electronic form. Indeed, it points out that DLT, involving distribution of data among nodes accessible only by secured keys in order to render it effectively tamper-proof, offers very significant possibilities for the acceptance, validity, and functionality of electronic documents in international trade equivalent to that accorded to their paper counterparts. 

These reforms can only be welcomed. If passed, the Bill will undoubtedly facilitate cross-border commerce by cutting unnecessary costs and reducing processing times and delays. Digitising documentation also contributes to sustainability, eco-efficiency, and environmental values by mitigating harmful carbon emissions, quite apart from boost the UK’s reputation as a global centre for international commerce and trade.

If there is a criticism of the Bill, it is its lack of detail. It does not contain any provisions on the procedural aspects of digitisation of documents, the use and exploitation of digitised documentation, or the mechanics of changing its form. In addition, the effectiveness of the gateway criteria might be achieved only upon the adoption of the specific protocols regarding the digital systems, their control mechanisms, and accreditation standards. One suspects in practice that if the bill becomes law, a detailed commentary will become essential for its practical application. This matters: unless such matters are satisfactorily sorted out, an electronic trade document that is effective in one jurisdiction might not be treated in the same way in another. 

Moreover, while trade documents are being transferred across borders, cross-border disputes are at least to some extent inevitable. This means that we will need to give attention to the private international law rules specific to such documents: even if they contain an English choice-of-law clause, this will not necessarily ensure the application of English law to all their aspects. The Law Commission, to its credit, has recognised this. It has already launched a follow-up project on the Conflict of laws and emerging technology to ensure the rules of applicable law and jurisdiction in an increasingly digitised world. This issue is still at the pre-consultation stage – this might mean that unless private international law rules applicable to the related matters are achieved, the current Bill might not be operable or practically effective.

Some other tidying up may also be necessary. There may be a need, for example, to clarify matters by a few further amendments to the Carriage of Goods by Sea Act 1992 and the Bills of Exchange Act 1882 over and above those in cl.6 of the Bill. which are not in line with the latest technological and legal developments and in particular, the new Bill. But even if there is some way to go the Bill is a very important development. We, for one, welcome it.

Professor Andrew Tettenborn

Dr Aygun Mammadzada

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!

Deviation for Crew Change- Who Pays for Additional Delay?

London Arbitration 11/22

What happens if parties agree that the chartered vessel (time or trip charter) would deviate to perform a specific task (e.g. crew change) but after the agreed task is completed further delay arises as a result of other factors (e.g. bad weather) and consequently additional time is lost? Is this a risk that shipowner assumes or is it simply an operational hazard that charterer in a time/trip charter is normally expected to bear?

This was the main issue that the tribunal was asked to address in London Arbitration 11/22 (a proceeding brought under LMAA Small Claims Procedure). The vessel was chartered under an amended NYPE 93 form for a trip from a sole load port in the Sea of Japan to a discharge port in the South China Sea carrying a cargo of steel billets and with an estimated duration of 25 to 30 days. The parties agreed in the charter that the vessel would have had a crew change at Hongai (Vietnam) and the deviation time and bunker costs to be at owners’ account. After the crew change had taken place on departing Hongai the vessel encountered bad weather in the South China Sea and her speed was reduced. The charterers made a deduction of 1.05 day from hire for the delay caused by bad weather following departure from Hongai. The owners argued that the charterers’ deduction was unlawful and breach of charterparty.   

In effect, this is a dispute concerning the application of “causation principles” in the context of a term in a charterparty. There can be no doubt that any time lost during the process of deviating to Hongai for crew exchange is on the owners’ account. However, does the owner remain responsible for any delay that occurs after the crew change had been completed on the premise that further delay would not have happened had the vessel not deviated to Hongai in the first instance?

There is little doubt that the deviation was a “but for” cause of the further delay arising due to bad weather after leaving Hongai but is this adequate to make owners’ liable? The tribunal thought “not”! And rightly so! Imagine that a taxi driver is involved in an accident after dropping a customer at a cottage in a remote location. Will it be possible for the driver to revert to the customer seeking compensation for the loss asserting that s/he would not have ben at that location if the customer had not engaged his/her services in the first place. Naturally not! One might say this is a different situation here as the charterer and owner are still in a contractual relationship. That is true but to make one party liable for consequential losses emerging in a contract, it is necessary that the term in question adopts a broad “causation trigger” to that effect. The clause in question here did not, but merely stated that “the deviation time/bunker/costs to be at Owners’ time/account”. In a similar context (indemnity for charterer’s orders) , the Supreme Court in The Kos [2012) UKSC 17, [2012] 2 Lloyd’s Rep 292 making a distinction between “effective causes” and “but for” causes ruled that in the absence of contrary wording in the relevant clause only losses emerging from an effective cause of the loss are recoverable. Here it can plausibly be argued that the relevant clause (enabling deviation for crew change) did not introduce a broad causation trigger and the loss arising due to bad weather was a “but for” cause and not an effective one.                         

Wireless transmission of NOR by email a valid tender under cl.6 Asbatankvoy.

In London Arbitration 30/22, the vessel was chartered on amended Asbatankvoy in which Clause 6 of the charterparty provides that the master was to give NOR “by letter, telegraph, wireless or telephone”. The master tendered NOR by email. Charterers argued that the tender was bad, relying on The Port Russel [2013] 2 Lloyd’s Rep 57 where an email tender was held to be not permitted under a charter on BPVOY3 which provided for NOR  to be given by “by letter, facsimile transmission, telegram, telex, radio or telephone”. Unlike cl.6 of Asbatankvoy the clause did not refer to tender by ‘wireless’. The tribunal accepted owners’ arguments that the reference to tender by “wireless” covered the email which was transmitted wirelessly using the vessel’s communication safety system. Owners also produced evidence, from Wikipedia, that email was around in the 1960s and early 1970s and so was in existence in 1977 the year of the Asbatankvoy form.

Performance Claims (Again) in Time Charters and Causation

London Arbitration 29/22

Charterparty agreements in contemporary practice invariably deal with risk allocation between parties and to that end incorporate lengthy provisions. However, such provisions might not always secure the outcome one party hopes to achieve as their legal construction are bound to be influenced from legal precedents and/or legal causation still plays a vital role in the outcome as charterers and also owners in the current dispute found out to their detriment. Several legal issues raised in this dispute, but it is worth elaborating 3 of them which might provide guidance to parties in future when it comes to drafting similar clauses in their agreements.

Speed and consumption calculations (performance)

The charterparty in question (which was on amended NYPE 1946 form), inter alia, stipulated:

Clause 29:

Speed/consumption based on good weather conditions up to Beaufort Scale 4 and Douglas Sea State 3. No adverse current and no negative influence of swell.

Clause 88:

… no hire to be deducted for alleged underperformance claim until it has been agreed by both parties.

In the absence of consistent discrepancy between deck log and weather routing service and in the absence of amicable settlement the matter will be referred to arbitration.

Charterers argued that the vessel did not perform as warranted on four voyages (in breach of cl 29) and they, accordingly, made deductions from hire. These deductions were based on the report prepared by a weather bureau appointed by the charterers. The reports found that the vessel’s performance was short of what was warranted on four voyages and time was lost consequently. The weather expert appointed by the owners doubted the methodology adopted by the charterers’ expert highlighting several technical reasons why the calculations were not accurate.

The tribunal agreed in general with the evidence provided by the owners’ weather expert especially stressing that:

  1. The charterers’ expert seems to include in calculations performance assessment during periods of adverse currents or when there was a negative influence of swell in contradiction with good weather indices of cl. 29;
  2. The vessel’s log was a more reliable indicator of currents than AIS positioning alone in moderate weather conditions:
  3. Satellite telemetry records did not provide sufficient accurate data regarding localised wind and sea state so as to automatically cast immediate doubt on ship’s observations.

From a legal pointy of view, the tribunal’s decision makes the point again that in instances where the relevant performance provision is silent on the beneficial currents, the owners are entitled to any benefit gained as a result of such currents (a point also made in The Divinegate [2002] EWHC 2095 (Comm)). More significantly, the tribunal’s decision demonstrates that in determining the performance of the chartered vessel, the data in the logbook will not automatically taken into account but equally calculations from weather experts would only be preferred if they are scientifically sound to doubt the accuracy of logbook data.                    

Hull fouling

Clause 82 of the charterparty provided that the charterers are responsible for the cost of hull and/or propeller cleaning if such cleaning is required following the vessel remaining idle at any safe anchorage for a total of 20 consecutive days.  

The vessel stayed at Bin Qasim for 22 days and the owners sought to recover the cost of cleaning at the next drydock. The owners also attempted to claim the cost of cleaning hard barnacle roots became embedded in the vessel’s hull discovered just before re-delivery after a report from an underwater operation carried out in Taiwan.

The tribunal found that the hull and propeller fouling was the result of the vessel’s call at Bin Qasim and the charterers were in breach of cl 82 for failing to arrange an underwater inspection and carrying out the necessary cleaning required. However, it was held that the claim for future freshwater washing and sandblasting was not covered by cl 82 as it was unlikely that hard barnacle roots became embedded in the vessel’s hull during the time spent at Bin Qasim. This highlights the need to demonstrate the existence of a causal link between the alleged loss and breach.      

Damage to hull

The owners claimed that one of the holds was damaged during loading and discharging operations. The claim was backed by a post-discharge survey and the master’s reports and indemnity for this damage was sought from the charterer under clause 8 of the charterparty which obliged the charterer to undertake all cargo operations and indemnify the owners for the consequences of the charterers’ employment orders.   

The tribunal found that it was very likely that the damage was caused during cargo operations but the owners failed in their claim for indemnity as they submitted no invoice following the drydocking giving the tribunal the impression that repairs were either not carried out or had been incorporated with other repairs. Put differently, the owners’ claim was not successful as they failed to prove loss. This is a timely reminder to owners that such indemnity claims need to be documented for recovery.        

Performance Warranties in Charterparties- “Good Weather” Qualification Again!  

Eastern Pacific Chartering inc v. Pola Maritime Ltd (The Divinegate) [2022] EWHC 2095 (Comm)

The Divinegate was trip chartered on an amended NYPE 1946 form with additional clauses for a carriage of pig iron from Riga via the Baltic Sea to the Mississippi River in the United States. Following discharge of the cargo, the owners sought unpaid hire, bunkers and expenses totalling US$ 99,982.79 and the charterers sought deductions from hire of US$ 93,074.55 for the failure to proceed with utmost despatch on the voyage and hull fouling. The charterers also made a counterclaim for US$ 72, 629.01 as damages in tort on grounds of the owners’ allegedly wrongful arrest of the vessel, The Polo Devora, of which charterers believed to be the beneficial owner. The wrongful arrest counterclaim failed and will not be discussed here.

The charterparty contained a performance warranty to the effect that “Speed and consumption basis no adverse currents and valid up and including Douglas Sea State 3/ Beaufort Force 4.”

The essence of the litigation was the assessment of the chartered vessel’s performance to determine whether there was, in fact, a failure to proceed with utmost despatch on the voyage. The owners contended that the performance of the vessel should be assessed in a conventional way, i.e. by reference to the vessel’s speed during “good weather”. The charterers, on the other hand, suggested that underperformance could be established by reference to the vessel’s measured RPM (revolution per minute) which reflects the engine speed maintained by the crew.   

The Judgment and Lessons for the Future          

Ms Clare Ambrose, sitting as a High Court Deputy Judge, made significant observations on the state of law in this area and reached interesting conclusions which are likely to inform the judges and arbitrators who are often called in to deal with performance related claims in the context of time (and trip) charters.

  1. It was stressed that traditional way of establishing breach and loss in performance claims is the “good weather” method and in instances where the parties have adopted such a formulation in their contracts (which was the case here) this will be the primary method of assessment used by the court.

2. The judge also appreciated that this is not the only available methodology for making calculations and there is no bar for alternative methods being used to measure vessel’s performance. However, any alternative method must be consistent with the express wording contained in the charterparty and must also be established as “reliable”. On the facts of this case, the RPM method was not found to be reliable in identifying loss of time as it made incorrect assumptions as to the resistance on the hull and made no allowance for weather conditions being a reason for a reduction in engine speed, as well as ignoring the fact that there were periods the vessel could not achieve the warranted speed due to other factors, e.g. currents.

Therefore, the judge left it open to parties to argue that alternative methods (especially in the light of emerging technologies) could be used to assess a chartered vessel’s performance but strongly hinted that so far no satisfactory method has been put forward to sway judges/arbitrators away from the traditional method and legal principles that have been developed for years. Referring to the “good weather” method, Ms Ambrose said (at [90]):

“The approach adopted in the authorities reflects commercial practice in assessing performance and the specific wording chosen by the parties, rather than the court imposing legal methodologies.”

3. An interesting debate in the case related to the impact of currents in the assessment of performance of the vessel. It was contended by the charterer that allowance should be made for the positive currents and positive currents should be, therefore, a factor in determining whether the vessel’s performance is at the warranted level. This argument found no support from the judge. It was held that in the absence of wording excluding the benefits of positive currents, such benefits should not be deducted in measuring the vessel’s speed for the purposes of the performance warranty. This provides a judicial clarity on the matter and is logical from a commercial perspective. A contrary solution would have meant that the owners would be penalised for its master finding a favourable current and ensuring that the vessel goes faster and burns less fuel (something that is economically beneficiary for both parties).

The judge applying the “good weather” method, reached the conclusion that the chartered vessel failed to meet the warranted speed so there was underperformance giving rise to a loss of time of 16 hours.

4. The judge also rejected the claim for hull fouling indicating that the use of good weather method for calculating loss from slow steaming would otherwise lead to double recovery.

The judgment is a reminder to the market that in the absence of clear and contrary wording it will be rather difficult to shift the traditional method of assessing a chartered vessel’s performance with reference to good weather method. However, especially in trip charters there remains a realistic possibility that it might not be possible to obtain good weather sample so as to be able to assess the performance of the vessel. In those instances, with the advances in technology, the courts and arbitrators might come under pressure to consider alternative assessment methods that could shed light on the performance of the chartered vessel.              

Laytime- Once Starts Can Only Be Stopped in Limited Instances

The MT Stena Primorsk [2022] EWHC 2147 (Comm) 

The vessel was charted for a single voyage (from Bilbao to Paulsboro on the Delaware River) pursuant to the terms of an amended Shellvoy 6 form. A period of 72 hours was allocated as laytime in the charterparty for loading and discharge and 68 hours and 54 minutes of the laytime had been used at the loading port (Bilbao).

The water depth at the intended discharge berth at Paulsboro was 12.19m. The vessel draft was 12.15m but the tide was expected to vary by 1.6m. Accordingly, in line with charterparty provisions, the master submitted a risk assessment and sought a waiver from the technical operators of the under keel clearance policy as stipulated in the charter form. The technical operators granted the waiver for the transit from anchorage and for the berthing. The waiver was issued on the assumption that the vessel’s draft was equal to or less than the draft of the river/berth at high water. The master was also asked to ensure that prompt commencement of discharge was discussed with the terminal officers.

The chartered vessel arrived at the discharge berth on 31 March 2019. The terminal informed the master that unloading needed to be conducted at a reduced rate initially. This could, in master’s calculations, mean that the discharge rate would be less than the rate necessary to maintain a safe under keel clearance. On that basis, the master took the decision to leave the berth (a short while berthing) and return to anchorage.

Another berth became available on 1 April and the master prepared a fresh under keel clearance calculation, and risk assessment and sought another waiver from the technical operators. The technical operators refused to give waiver on this occasion stating that the safety for margin was too small and there were not sufficient controls in place to mitigate the risk of the vessel touching bottom.

The vessel managed to berth only after a portion of the cargo was lightened on 4 April 2019. This caused a further delay and laytime ended on 6 April (10.24). By that time, a further 154.63 hours were used at Paulsboro, bringing the total time used to 226.63 hours. The owners sought demurrage in the sum of US$ 143,153.64. The charterers raised objection to the demurrage claim arguing:

  1. Two incidents (the owner’s decision to leave the discharge terminal within 12 minutes of berthing on 31 March 2019 and the owner’s refusal to comply with the charterer’s request to return to berth at 21.00 on 1 April) had the effect of suspending the running of laytime;
  2. The notice of readiness (NOR) given by the owner upon arrival at Paulsboro was not valid because “free pratique” certificate had not been granted.

His Honour Judge Bird found on both of these points in favour of the owners:                        

  1. The running of the laytime is suspended only when time is lost due to “default on the owner’s part, or on the part of those for whom they are responsible” (The Fontevivo [1975] 1 Lloyd’s Rep 339). This was not the case here as the owner acted in a way permitted and required by the relevant charterparty (the need to operate the vessel safely was explicitly specified in the charter and the contract made clear that under keel clearance was binding and not to be breached without consent). It was also noted that the power to grant or refuse a waiver of the policy was not limited in any way in the charterparty.
  2. The evidence indicated that there was no formal mechanism for the grant of “free pratique” at the discharge port and the port appeared to have operated a free pratique by default system, with decisions communicated if there was disease on board. Accordingly, the NOR had been valid.             

Comment

The running of laytime can only be suspended by express terms of the contract or if there is a “fault” on the part of the owners preventing the loading or discharging operations. It is clear that the “fault” does not need to be an actionable breach of the charterparty, but the present decision (in line with earlier authorities) also makes clear that no fault can be established in cases where the master takes steps that cause delay for safety reasons and such decisions are deemed to be “entirely justifiable” in the circumstances. In the present context, a “capricious refusal” to grant a waiver of keel clearance policy by the operators, for example, could have amounted to a “fault” capable of suspending the running of the clock but that was not the case.

The obtaining of a “free pratique” certificate was a mere formality prior to the commencement of the global pandemic and the finding in this case reflects that position. The matter might be rather different now especially given that some countries have introduced strict quarantining and/or testing requirements for Covid. It is very unlikely that in today’s commercial world we could easily assume that any port operates on a “free pratique” default system. And, in those instances lack of “free pratique“ certificate could prevent the chartered vessel from being regarded as an “arrived ship” which is vital for the commencement of the laytime period.