BIMCO COVID-19 Crew Change Clause – An Attempt to Facilitate Crew Changes

On 25 June, BIMCO announced the publication of their novel COVID-19 Crew Change Clause for Time Charter Parties. The clause provides shipowners with the right to deviate for crew changes ‘if COVID-19 related restrictions prevent crew changes from being conducted at the ports or places to which the vessel has been ordered or within the scheduled period of call’. Shipowners can exercise their right to deviate by giving charterers a written notice as soon as reasonably possible. The crew change costs will rest on shipowners, unless shipowners and charterers agree that the vessel will remain on hire during the deviation period, but at a reduced rate. In such case, the cost of bunkers consumed will be shared equally between shipowners and charterers.

With more than 200,000 seafarers currently working on board after the expiry of their contracts of employment, the COVID-19 Crew Change Clause at least ensures that shipowners can sail to those few ports were crew changes are possible, without facing the risk of breaching their contractual obligations under time charters. It should be noted, however, that this is not a panacea to the issue of crew changes. Recognising seafarers as ‘keyworkers’ and designating ports where crew changes can take place safely following the Protocols designed by the IMO (Circular Letter No 4204/Add 14 (5 May 2020) should remain a priority. 

 

In London Arbitration 3/20 the Tribunal considered the effect of the time bar provision in cl.6 of the Inter-Club NYPE Agreement 2011 (the ICA) .

“(6) Recovery under this Agreement by an Owner or charterer shall be deemed to be waived and absolutely barred unless written notification of the Cargo Claim has been given to the other party to the charterparty within 24 months of the date of delivery of the cargo or the dates the cargo should have been delivered, save that, where the Hamburg Rules or any national legislation giving effect thereto are compulsorily applicable by operation of law to the contract of carriage or to that part of the transit that comprised carriage on the chartered vessel, the period shall be 36 months. Such notification shall if possible include details of the contract of carriage, the nature of the claim and the amount claimed.”

The vessel was time-chartered on the NYPE form. Clause 27 of the charter expressly incorporated the ICA and contained a Clause Paramount. Under a booking note on the charterer’s house form dated 19 December 2014 between the charterer as carrier and G as merchant, the charterer contracted to carry a cargo of engine equipment (the Cargo) from a United States port to a North African port. During the voyage the vessel’s crew accidentally pumped water into No 2 cargo hold.  G gave notice to the charterer of its intention to pursue a cargo claim against it as contractual carrier, although no claim had yet been formally presented. By various emails, information was passed by G to the charterer and by the charterer to the owners, and extensions of time were given by the charterer to G, and by the owners and their P&I Club to the charterer.

The issue before the Tribunal was whether, following the expiry of 24 months from the date of delivery of the cargo, the charterer was now precluded by the time bar provision in clause (6) of the ICA from bringing any claim against the owners in respect of G’s intended cargo claim.

The Tribunal found that the “notification” did not have to refer to the ICA, either expressly or impliedly. Clause (6) required simply “written notification of the Cargo Claim” to be given to the other party. It was not in itself the claim for recovery under the ICA but was a notice required if a claim over was later to be made, which could only happen when the cause of action accrued, which necessitated the proper settlement or compromise and payment of the third-party claim under the terms of clause (4)(c).

To be an effective “notification”, the written notice did not have to comply with the requirements of the second sentence, namely to include details of the contract of carriage, the nature of the claim and the amount claimed, so far as it was possible to do so. The intention of the draftsman was to distinguish between the absence of a written notification which would bar the recovery claim and the absence of details to be included within it, if possible, which would not have that effect. The words “if possible” suggested that the provision of details was not essential to the giving of notification. The breach of such an obligation would give rise to a right to damages if any loss could be established, which appeared unlikely in most situations.

In consequence, as the tribunal had found that a notification was valid, even if details which could have been provided were not provided, and the recourse claim which the charterer wished to pursue was not deemed waived or barred.

Clause (6) of the ICA operated in an entirely different way from a conventional time bar for a cargo claim. The period allowed for notification ran from the date of delivery and not from the date when the cause of action accrued which, in the case of an indemnity might not be for a number of years, as and when the liability to cargo interests crystallised. To stop time running, the prospective claimant did not have to commence proceedings but merely to give notification of the claim under clause (6), with the six-year time bar operating from the date of accrual of the cause of action.

 

Security clauses in charters — by hook or by crook they will be enforced

Behind Teare J’s decision today in Trafigura Maritime Logistics PTE Ltd v Clearlake Shipping PTE Ltd (Rev 1) [2020] EWHC 995 (Comm) lies a fairly standard series of shipping lawyer’s nightmares.

Trafigura time-chartered the Miracle Hope, a big (320,000 dwt) VLCC, from Ocean Light. They voyage-chartered her to Clearlake and Clearlake sub-voyage-chartered to Petrobras, both charters being back-to-back under Shellvoy 6. Petrobras demanded that the cargo be delivered without production of the bill of lading; the demand was passed up the chain and the cargo (worth, before the recent oil debacle, something over $70 million) released.

Thereupon Natixis, a Dutch bank which had financed Petrobras’s buyers, emerged brandishing a bill of lading apparently issued by Ocean Light, demanded the value of the cargo, and arrested the ship in Singapore. Ocean Light immediately demanded an indemnity from Trafigura: Trafigura, relying on a duty in the charterer in such cases to “provide an LOI as per Owners’ P&I Club wording”, demanded an LOI from Clearlake and Clearlake did the same from Petrobras. Following clear practice (e.g. The Laemthong Glory [2004] EWHC 2738 (Comm); [2005] 1 Lloyd’s Rep. 632), Henshaw J granted mandatory orders down the line requiring the charterers to provide such bail or other security required to secure the release of the vessel.

Unfortunately at this point problems arose. Clearlake and Petrobras negotiated with Natixis; the result was deadlock. Furthermore, owing to the worldwide contagion the Singapore courts could not break the deadlock for some weeks. And, of course, all the time the Miracle Hope was mewed up in Singapore: something which, with tanker hire rates now sky-high, would not do.

In other words, Henshaw J’s order was unworkable. As a result the matter came back to the Commercial Court. To order the provision of a guarantee satisfactory to Natixis would be unsatisfactory: furthermore, since the matter was likely eventually to reach the Singapore courts, it risked prejudging the issue in that forum.

The solution reached was workmanlike. The court had to do something. Security to obtain the release of a vessel could take the form of a payment into court; and, faute de mieux, Teare J ordered just that. Clearlake and Petrobras were ordered to arrange for payment into the Singapore court of $76 million within 8 days, no doubt with Petrobras bound to indemnify Clearlake, who in the circumstances were little more than piggy-in-the-middle. If this was necessary to secure the release of the vessel, this would be what was ordered.

And rightly so, in our view. As the title of this blogpost implies, an obligation to secure the release of a vessel has to be given effect. As with Coronavirus, so with the release of a ship: it is a case of doing all that it takes. Even if that takes a slightly unorthodox form.

Switch bills. Initial shipper off the hook for freight due under bill of lading.

 

The effect of switch bills with a new shipper in the second set has the effect of a novation of the initial contract contained or evidenced in the initial bill with the shipowner as carrier under the bill. So held Stevenson J in the Supreme Court of New South Wales in The Illawarra Fortune [2020] NSWSC 183. Both sets incorporated the freight payable under a voyage charterparty with the time charterer of the vessel. The initial shipper, whose parent company was the voyage charterer, ceased to be liable for unpaid freight once the second bills were issued naming a different shipper. Had the original bills not been switched the time charterer, as assignee of the shipowner’s rights under the bills of lading,  would have been able to sue the original shipper for freight due under the voyage charter with the shipper’s parent company.

New year, new sulphur cap.

The Sulphur cap is here. If you’re a shipowner still running on High Sulphur Fuel Oil (HSFO) you need to trust to your Fuel Oil Non-Availability Report (FONAR), unless you are fitted with scrubbers. If you’re running on Low Sulphur Fuel Oil (LSFO) now you still need to get any HSFO off your vessel by 1 March 2020 due to the Carriage Ban. Apart from increasing the cost of running a vessel, the IMO’s two regulation are likely to see various additional costs being incurred by shipowners: costs of disposal of remaining onboard HSFO including costs of tank and line cleaning to avoid residual HSFO mingling with LSFO and pushing the Sulphur level over 0.5%; time lost in performing such operations; effect of LSFO on owners’ performance warranties under time charters; fines and detention due to inability to get remaining HSFO off the vessel by 1.3.2020 (there is no equivalent of a FONAR to cover this eventuality). A report from S&P Global Platts last week reveals that a lot of debunkering is going to have take place between now and 1.3.2020. https://www.spglobal.com/platts/en/market-insights/latest-news/shipping/122719-shipowners-rush-to-de-bunker-hsfo-as-imo-2020-looms

Added to that there is the greater risk of engine damage due to use of LSFO. Today Reuters carries a report that testing companies examining newer, low-sulphur marine blends acquired in Antwerp, Belgium, Houston and Singapore have found sediment at levels that could damage the engines of ocean-going vessels. Depressing news with which to welcome in the new year. https://uk.reuters.com/article/uk-shipping-imo-fueloil/tests-raise-alarms-over-fuel-blends-coming-for-ocean-going-vessels-idUKKBN1YZ1ED

It is likely that the new decade will see a spate of claims arising out of the sulphur cap and the carriage ban, particularly under time charters, with renewed interest by owners in the indemnity as a means of clawing back costs from time charterers.

BIMCO withdrawal clause. No withdrawal for underpayment of previous hire instalment.  

 

Quiana Navigation SA v Pacific Gulf Shipping (Singapore) PTE Ltd “Caravos Liberty” [2019] EWHC 3171 (Comm) involved  a time charter under which the charterers made an underpayment of the fourth instalment of hire but owners did not exercise their right to withdraw under the BIMCO withdrawal clause incorporated into the time charter. However, the shortfall remained and at the time of the sixth instalment, which was paid in full, the owners decided to withdraw the vessel on account of the remaining shortfall in hire under the fourth instalment. The key words in the BIMCO Clause are “If the hire is not received by the Owners by midnight on the due date, the Owners may immediately following such non-payment suspend the performance of any or all of their obligations under this Charter Party (and if they so suspend, inform the Charterers accordingly) until such time as the payment due is received by the Owners.” In the context of the right to withdraw, what constitutes ‘the hire’? The tribunal found that it referred to the hire for that particular instalment and did not encompass previous underpayments. Cockerill J upheld that decision. The question “What is the hire?” question could only sensibly be answered and one single date produced if the charterers’ approach were preferred.  Cockerill J stated [42]:

“[i]t is artificial to ignore the temporal dimension inherent in the reference to a “due date” in (a); and equally artificial to say that the sum outstanding from the fourth instalment was due “on” 10 August. Owners’ argument also, either (as Charterers would put it) impermissibly elides the very real distinction between the continuing entitlement to recover hire as a debt and on the other the independent contractual entitlement to withdraw or at least attempts to draw focus from the existence of other remedies.”

Accordingly, owners’ withdrawal was unjustified and amounted to a repudiation of the charter.

“My wife may capture my heart”. Off hire and capture by pirates.

 

Owners time chartered the “Eleni P” on an amended NYPE 1946 form and during a voyage from Ukraine to China the vessel was routed via the Suez Canal and the Gulf of Aden. After transiting the Gulf of Aden without incident she was attacked and captured by pirates in the Arabian sea and released some seven months later.

Owners claimed US$ 4.5 million hire for this period. The Tribunal rejected the claim on the grounds that two additional typed clauses, clauses 49 and 101, excluded it. Owners appealed in respect of the correct construction of each pursuant to s69 of the Arbitration Act 1996. In Eleni Shipping Limited v Transgrain Shipping BV (“The ELENI P”) [2019] EWHC 910 (Comm) Popplewell J held that the appeal succeeded in respect of clause 49, but failed in respect of clause 101.

Clause 49 – Capture, Seizure and ArrestShould the vessel be captures [sic] or seized or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended for the actual time lost […]

Owners contended before Popplewell J that Clause 49 only applied when the Vessel was captured, seized, detained or arrested by any authority or any legal process – it therefore did not apply to capture by pirates. Charterers argued that only the word “arrested” was qualified by the phrase “by any authority or by any legal process” andnot  the word “captured” , and therefore as a matter of ordinary language, the Vessel had been captured.

Popplewell J held that the clause only applied to capture by an authority or legal process, and therefore not to capture by pirates. The words “any authority or any legal process” applied to the whole preceding list of events. To limit it to arrest would be superfluous. The tribunal had stated that ‘capture’ was not something that an ‘authority’ could be involved with. Not so, Popplewell J stating “capture does not necessarily connote the use of force. Unoccupied land or undefended goods may be captured. My wife may capture my heart. I see no difficulty as a matter of the ordinary use of language in the concept of a governmental authority or ruler capturing a vessel.”

Clause 101 – Piracy ClauseCharterers are allowed to transit Gulf of Aden any time, all extra war risk premium and/or kidnap and ransom as quoted by the vessel’s Underwriters, if any, will be reimbursed by Charterers. […] In case vessel should be threatened/kidnapped by reason of piracy, payment of hire shall be suspended. It’s remain understood [sic] that during transit of Gulf of Aden the vessel will follow all procedures as required for such transit including but not limited the instructions as received by the patrolling squad in the area for safe participating to the convoy west or east bound.

Did the suspension of hire only operate if the vessel were threatened or kidnapped by reason of piracy while transiting the Gulf of Aden, as owners argued, or did it operate wherever the Vessel was threatened in the Gulf of Aden or as an immediate consequence of her transiting or being about to transit the Gulf, a charterers argued? The Tribunal had accepted charterers’ argument and so did Popplewell J. The purpose of the Clause was to allocate the risks associated with such trade, not solely within a specifically defined geographical area. Its first sentence allocates the burden of an extra war risk premium and the sentence concerning hire suspension allocates the risk of delay from detention as a consequence of the transit which the first sentence requires.

Accordingly, owners were unable to claim hire for the seven months during which the vessel was held by the pirates.

No deduction from hire clause in time charter means what it says.

In London Arbitration 7/19 the tribunal decided that a clause in a time charter stating ‘Charterers have no right to make any deduction from hire payments… Chrts do not have the right to deduct from hire payment any amounts on alleged under performance, except undisputed off hire” precluded charterers from making deductions from hire by way of equitable set off. The tribunal referred to the unreported decision in Marubeni v Sea Containers Ltd 17 May 1995, in which Waller J said:

“First, in the same way as the words ‘deduction or withholding’ are not terms of art which will always include‘set-off’, they are equally not terms of art which limit their meaning to only covering taxes, levies or duties. Second, the fact that clear words are necessary does not mean that the word ‘set-off’ must be used. The words can be clear from their context. Third, what is said in one contract between other parties in one context, cannot really assist in the construction of another contract between different parties in a quite different context.”

Charterers could not deduct their off hire claims either as these were not undisputed. The charterers had argued that they had not made deductions from hire,but that hire was simply suspended, but that was a distinction without a difference.

Prove it. No damages for redelivery with dirty holds

 

.

London Arbitration 1/19 shows that owners need to substantiate a claim for cleaning dirty holds after redelivery under a time charter. The vessel was chartered on an amended NYPE 1946 form for “2–3 laden legs of minimum duration 40 days”. Line 22 of the charterparty provided for the carriage of “any ordinary cargo” with an additional clause containing various cargo exclusions and restrictions including a stipulation that coal was not to be the last cargo. The charter also provided “Charterers shall have the option of redelivering the Vessel without cleaning of holds against paying the Owners a lumpsum of USD5,000 lumpsum, including removal of dunnage/bark/debris.”

In breach of charter the final voyage was for a full cargo of anthracite, following which the vessel was redelivered to the owners without any cleaning of the holds. The owners then used the crew to clean the holds which took nine days. The vessel’s next employment commenced two days later.

The owners claimed to be compensated at the hire rate for the time spent cleaning the cargo holds following the redelivery of the vessel, some 9.3854 days. The charterers submitted that there was no legal basis for the owners’ method of assessment of their damages claim as being effectively an extended period of hire. The owners had not provided any evidence of any cleaning operations, or of losses or extra costs. There was no evidence of any possible follow-on fixture being missed. No details had been provided of the cleaning operation which was said to have occupied more than nine days. The charterers accepted that payment of US$5,000 for redelivery with unclean holds was due to the owners but denied that any further compensation was due.

The tribunal held that the only possible conclusion to be drawn from the absence of any evidence of losses or extra costs incurred by the owners as a result of their having to clean the cargo holds had to be that none were in fact incurred, and that the owners’ claim therefore had to fail. Owners’ claim was dismissed.

 

 

 

Are fall in value claims due to delay and deviation “Cargo Claims” ?

 

 

This issue arose in London Arbitration 4/19 under a charter on NYPE form which incorporated the Inter-Club Agreement 1984 with any subsequent modification or replacement. The parties agreed to extend time for six months under an addendum which contained cl.6 providing that charterers would be fully liable for all cargo claims, howsoever caused, including seaworthiness. During the extended charter period the vessel diverted to Goa and spent 36 days there. Charterers then deducted $295,000 from hire being what they had paid receivers in respect of financial losses due to a fall in the sound arrived value of the cargo due to the deviation to and delay at Goa. Although “cargo claims” could as a matter of language be restricted to claims for physical loss or damage, clause 6 had to be interpreted in the light of the Inter-Club Agreement which was also part of the charter and in particular the definition of “cargo claims” contained in the 1996 Agreement as “claims for loss, damage, shortage…overcarriage of or delay to cargo.” Charterer’s claim therefore related to a “cargo claim” for which they were fully liable under the terms of cl.6.