Category: Time Charter

BIMCO. Three new Emissions Transfer Scheme Clauses for Voyage Charters.

To complement its 2022 Emissions Trading Scheme Allowances Clause for time charterers, on 8 December 2023, BIMCO released three ETS clauses for voyage charters.

As with the 2022 time charter clause, the clauses seek to place all the costs of incurring liability for emissions allowances onto the voyage charterer.  This can be done as follows: 

– by including them in the freight rate, under the ETS – Emission Scheme Freight Clause for Voyage Charter Parties 2023, or

– by requiring payment of a surcharge for payment of emission allowances under the voyage with owners remaining responsible for surrendering the appropriate number of emissions allowances under the ETS – Emission Scheme Surcharge Clause for Voyage Charter Parties 2023, or

– by the voyage charterer transferring emission allowances to the owners for the voyage and the owners remaining contractually responsible for surrendering the appropriate number of emission allowances in accordance with the applicable Emission Scheme. ETS – Emission Scheme Transfer of Allowances Clause for Voyage Charter Parties 2023.

Of course, charterers may not be willing to accept a transfer of emissions allowance costs in their fixtures. In the case of a time charter, account needs to be taken of the ‘pass-through’ in Directive 2023/959, amending the ETS Directive, and Regulation 2023/957.

Article 3gc of the 2023 ETS Directive, requires Member States 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.”.

Unless the time charter incorporates a clause such as  BIMCO’s  Emission Trading Scheme Allowances for Time Charterparties Clause 2022 which places all emissions costs on the time charterer, time charterers planning to employ the vessel in the EU may want to include a  form of “circular indemnity” clause in their fixture. The owner would warrant that the ‘shipping company’ under Directive 2023/959 will not make a claim against the time charterer under any legislation of a Member State providing for reimbursement of costs arising from the surrender of allowances, pursuant to Article 3gc of Directive 2023/959. Further, in the event of any judgment in favour of the shipping company that is made against the time charterer in respect of the costs arising from the surrender of emissions allowances by the courts of any EU Member State, the shipowner will indemnify the time charterer in respect of all resulting costs of such a judgment.

Hull Fouling Clause. Time charterers’ liability in debt to owners for cleaning after redelivery.

When do time charterers have to pay hire after redelivery? When there’s the right form of underwater cleaning clause. So held Sir Ross Cranston (sitting as a High Court Judge) in The Globe Danae (Smart Gain Shipping v Langlois Enterprises) [2023] EWHC 1683 (Comm). The clause in question, in a trip charter, provided:

“Clause 86 Hull Fouling

Owners not to be responsible for any decrease in speed/increase in consumption of the Vessel whether permanent or temporary cause [sic] by Charterers staying in ports exceeding 25 days trading in tropical and 30 days if in non-tropical waters. In such a case, underwater cleaning of hull including propeller etc. to be done at first workable opportunity and always at Charterers’ time and expense. After hull cleaning vessel’s performance warranties to be reinstated.”

The issue at stake was whether Owners could claim the hire rate (and related expenses) for the time used in hull cleaning after redelivery, or whether they were confined to a claim in damages for breach of the charterparty. In arbitration the Charterers argued that they were not obliged to carry out cleaning after redelivery of the vessel, and Owners were confined to a claim in damages to put them in the position they would otherwise have been in and were not entitled to the cost of hire since there was no longer an obligation to pay it. The Tribunal rejected these arguments and found for Owners, referring to The Nicki R [1984] 2 Lloyd’s LR 186, which involved a similar clause concerning stevedore damage, as authority for the proposition that the Owners were not required to demonstrate loss of time regardless of whether the cleaning was performed before or after redelivery. If a clause allocates liability for the time to the charterer, the owners do not have to prove any actual loss of time and Owners can claim in debt.

On an appeal pursuant to s.69 of the Arbitration Act 1996, Sir Ross Cranston upheld the award of the Tribunal. First, the words of the second sentence supported the tribunal’s conclusion and the Owners’ construction. Cleaning was to be “always at Charterers’ time”, and that meant  that the Charterers must always pay for the time associated with underwater cleaning. The phrase “at the first workable opportunity” covered both before and after the charterparty. As this charterparty was for a single trip, the first workable opportunity for cleaning following a 25 or 30-day idle period would likely be once the charter had concluded and the vessel had been redelivered.

Had the parties intended for Charterers to compensate the Owners for any “loss of time” resulting from the cleaning, the language of clause 86 could have said this. But the clause used the phrase “always at Charterers’ time”.  The charterparty contained clauses “at Charterers’ time” or similar, and clauses referring to “loss of time” or similar, so that the parties must be taken to have intended that a distinction be drawn between the two phrases. The plain words of the clause therefore supported the Tribunal’s conclusion, The clause required that the cleaning be at the Charterers’ time and expense. The charter did not expressly stating that underwater cleaning must be undertaken before the vessel is redelivered to the Owners.

As to commercial purpose, the rationale of clause 86 was that the vessel needed underwater cleaning because of the Charterers’ orders that it remain idle and must therefore pay for the time and cost of remedying the consequent fouling. The vessel could be redelivered unclean, but then Charterers must compensate the Owners at the hire rate for the time when cleaning is undertaken. This was commercially sensible. What would not be commercially sensible would be to provide the Charterers with an incentive to redeliver the vessel without cleaning, and to evade having to pay hire for the time spent cleaning, unless there was a workable opportunity for that to be undertaken before redelivery.

To conclude, there was no reason not to apply The Nicki R and it was binding.

Employment Orders, Safe Port (Anchorage) No Off-Hire for Events Resulting from Charterer’s Employment Orders

 London Arbitration 14/23

This is a decision of the tribunal that illustrates the range of express (and implied) terms that are available in standard charter forms for an owner whose ship is damaged or ends up incurring expenses as a result of natural events affecting the area in which the chartered vessel has been directed.   

The vessel was chartered on a trip charter via the US Gulf to China with a duration of about 80 to 90 days on an amended NYPE 1946 form. The vessel arrived at Southwest Pass, Mississippi River on 18 August 2021. The master received a weather forecast indicating that a hurricane would develop in the Central Gulf by the evening of 28 August. He sought urgent instructions from charterers about berthing before the storm’s landfall. On 28 August, when the vessel was still at anchorage, tropical storm Ida hit the region. Throughout 28 and 29 August, the deck log repeatedly reported that the vessel touched the bottom. The ship was ultimately grounded around 7 m from the riverbank as a result of the storm. On 31 August, the vessel, with the assistance of tugs was refloated and re-anchored nearer to the channel. While waiting for berthing, on 12 September, the vessel turned owing to the strong winds and one of the anchor cables was leading under the keel. As a result, the anchor chain fouled and when a berth became available on 21 September, she could not proceed to the berth available. On 24 September, the cables were disentangled with the assistance of two tugboats. After the vessel arrived at the discharged port, she was inspected (an underwater survey) and there was significant evidence of hull fouling but there was no evidence of damage as a result of the bottom touching on the riverbed. 

The owners brought 3 claims to the charterers (which were considered by the tribunal):

  1. The cost of refloating, shifting, and re-anchoring the vessel on 31 August (US$ 17, 165.40);
  2. The cost of disentangling anchor cables (US$ 12,320) and deduction made from hire (off-hire) for consequential delayed berthing (US$ 118, 738.76); and
  3. The cost of inspecting the hull and cleaning on 28 November (US$ 32, 414.82).

     

On (i) the tribunal found in favor of the owner giving several legal reasons:

a) It was the view of the tribunal that the anchorage was not safe as the hurricane was not an abnormal occurrence (it was of an intensity that was within the normally expected bounds for the season in The Gulf of Mexico). Hence, the anchorage did not have the infrastructure or facilities to deal with the events expected (The Eastern City [1958] 2 Lloyd’s Rep- 127 and The Ocean Victory [2014] 1 Lloyd’s Rep 59).

b) The charterer was in breach of the warranty in the charter that the vessel would always be afloat.

c) As the vessel’s anchoring at that location was in compliance with the charterer’s orders, the expenses of the tugs would be recoverable under the indemnity implied in cl 8 (employment order).      

The owner was also allowed to recover all sums claimed under (ii) on several grounds: 

a) The cost of entangling the anchor cables (US$ 12,320) was allowed as this was deemed to be an expense arising from the unsafe nature of the anchorage place. 

b) The vessel was also deemed to be on hire for the period because of the same reasoning so the charterers were held to be in error for making a deduction from hire for the time lost when berthing the vessel. (This is very much in line with the legal authority pointing out that charterers cannot put a ship off-hire in circumstances when the loss of time is caused by events for which s/he is responsible (The Laconian Confidence [1997] 1 Lloyd’s Rep 139).  

It is worth noting that the charterers’ alternative argument that the fouling of the cables was the result of the master’s negligence (e.g. failing to implement any or any adequate steps or procedures appropriate to the technical specifications and characteristics of the vessel) failed on evidence but it was also pointed out by the tribunal that owners were not responsible for loss or damage resulting from master’s negligence by virtue of Article IV, rule 2(a) of the Hague Visby Rules incorporated into the charter as a result of the Clause Paramount. 

The owner’s claim for hull fouling (iii) was based on cl 100 of the charterparty which stipulated that:

“Where the vessel remains at anchorage, in port, or idle for a period exceeding 25 consecutive days (whether in tropical waters or not) in compliance with Charterer’s instructions, and this causes fouling of the hull or underwater parts, Owners shall not be responsible for such fouling or any vessel underperformance caused by such fouling. Charterers to arrange, before redelivery, the vessel’s underwater hull area to be inspected and cleaned, if necessary. The cost of cleaning the hull or underwater parts, and the time spent doing so, shall be for the charterer’s account.”     

The charterers argued that cl. 100 applied only to prolonged stays in salt water, and not freshwater as in the Mississippi River (although there is no authority on this issue this is in practice deemed to be the correct assumption). To demonstrate that hull fouling could have happened when the vessel was at anchorage, the owner submitted an article from a US news outlet which reported drought conditions had resulted in near-record low water levels in the Mississippi and, as the flow in the river dropped, it lost its ability to keep salt water from the Gulf of Mexico at bay. The tribunal refused to rely on this article to sustain the argument that the degree of salinity necessary to support the relevant maritime organisms had developed in the Mississippi River. Even though the tribunal did not expressly rule on the issue, their reasoning indicates that they accepted the submission of the charterers that the ship’s bottom cannot be fouled in freshwater environments. On that basis, the owner’s claim for the cost of inspection and cleaning (iii) failed.   

Scope of “Error in Navigation” Defence under the Hague (Hague-Visby) Rules

Mercuria Energy Trading Pte v. Raphael Cotoner Investments Ltd (The Afra Oak) [2023] EWHC 2978 (Comm)

If the master of the chartered vessel, in breach of charterer’s employment instructions, causes a loss to the charterer, would the owner be entitled to rely on Article IV(2)(a) of the Hague-Visby Rules (error in navigation) as a defence in a claim brought by the charterer for compensation? This was the central issue in The Afra Oak. The facts are relatively straightforward. On 7 February 2019, the charterers instructed the owners “to proceed to Spore EOPL for further orders.” On 9 February, the master, while on passage, took a decision to anchor within Indonesian territorial waters to wait for orders on the basis that it was an easier place to anchor. On 12 February 2019, the Indonesian Navy detained the vessel and arrested the master. It transpired that the vessel was not entitled to anchor under the United Nations Convention on Law of the Sea (UNCLOS) 1982 in Indonesian territorial waters and such anchoring was prohibited by Indonesian law and by doing so the master committed a criminal offence which he was convicted for in October 2019. The charterer demanded damages from the owner by claiming that the vessel was unseaworthy (due to the fact that the master had a disabling lack of knowledge in relation to anchoring in territorial waters) and also the actions of the master amounted to breach of its employment instructions. The arbitration tribunal held against the charterer on the first issue (that the vessel was unseaworthy) but decided in its favour on the second (i.e. the actions of the master amounted to breach of employment instructions given). However, this was not adequate to bring victory to charterer in the present case as the tribunal also held that the owner was entitled in this instance to rely on Article IV(2)(a) of the Hague Rules (there is no difference between Hague and Hague Visby Rules in this respect and the Rules were incorporated in this instance into the charterparty) which provided a defence to the owner. This provision states:

“Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from: (a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship….”

The charterer appealed to the High Court contending that the tribunal made an error in law in holding that Article IV(2)(a) of the Rules would be applicable in the present case. The charterers case primarily based on the House of Lords decision in The Hill Harmony [2001] 1 AC 638 where the owner was not allowed to rely on the same exception when it opted to follow a route different than the one recommended by the charterer. More precisely, the master declined to take the shorter northern circle route recommended to charterers by a weather routeing service for a trans-Pacific voyage and took the longer more southerly rhumb line route. He did so because on a previous trans-Pacific voyage, the vessel had encountered very bad weather and had suffered damage. The House of Lords were adamant that in such a case the owner could not rely on the “error in navigation” defence as the master had no rational justification for doing what he did.

Sir Nigel Teare was able to distinguish the present case than The Hill Harmony stressing that the master here simply failed to exhibit good navigation and seamanship in failing to take into account of the risk of anchoring in Indonesian territorial waters. Put differently, in this instance what caused the master to fail to comply with the charterer’s order was his failure to exhibit good navigation and seamanship. Conversely, in The Hill Harmony the master’s choice of route was not caused by any error in navigation or seamanship.

Sir Nigel Teare, correctly in author’s view, came to the conclusion that The Hill Harmony was not authority for the proposition that where there has been a failure to follow an employment order the exception in respect of a fault in the navigation of the vessel is unavailable. He stressed that there could be instances like The Hill Harmony where the master not due to any error in navigation and seamanship (but simply due to a commercial choice) takes a decision in breach of the employment instructions. In such cases, the navigational error defence found in Article IV(2)(a) of the Rules would not be open to the owner. However, in a case like the present one the defence might certainly be available, It is worth noting, however, that to be able to rely on the defence it is essential for a shipowner to demonstrate that the master’s actions were in the navigation or management of the vessel and an exercise of (poor) seamanship! Sir Teare’s judgment is a sigh of relief to owners especially when trading to ports where territorial boundaries in surrounding waters can be unclear. In such places, any mistake made by the crew in determining the place of anchorage (or making any other navigational decision) which might cause loss to the charterer might provide a defence to the owner if the Rules are successfully incorporated into the charterparty.

Delay due to COVID 19 tests on crew and off-hire.

London Arbitration 13/23 involved an off-hire claim was made by time charterers in respect of a period of delay in transiting the Panama Canal due to the vessel’s quarantine pending the results of PCR tests on the crew. Shortly before the vessel’s arrival at the Panama Canal the Master fell ill on May 24 2021 and the vessel deviated to the nearest port in Puerto Rico to land the master ashore. The next day the master died with the vessel then having an eta at Cristobal for transiting the canal on the morning of 28 May. A test was taken on the deceased master which came back negative and the crew took PCR tests but not until these came back negative was the vessel allowed to come out of quarantine, and the vessel ultimately started its transit of the Panama Canal at 16.47 on 31 May 2021.

Charterers advanced their claim by reference to four clauses, and all were unsuccessful.

1.  cl.15. That in the event of the loss of time from deficiency and/or default and/or strike of crew and/or of men … or by any other cause preventing the full working of vessel, the payment of hire shall cease for the time thereby lost …”

Although in The Apollo [1978] 1 Lloyd’s Rep 200 a delay in berthing awaiting free pratique caused by previous illnesses on board was found to be an off-hire event, the off-hire clause there had included the term “any other cause whatsoever” and it was on the basis of that wording that the charterers had been found able to place the vessel off hire. Here, there was no cause within the terms of clause 15.

2. cl. 38. Certificates/Vaccinations

Owners are obliged to deliver and maintain throughout the currency of this Charter Party the vessel, her crew and anything pertaining hereto supplied with up to date and complete certificates (including Oil Pollution Certificates), approvals, equipment and fittings enabling the vessel and her crew to trade within the trading limits … Officers and crew to comply with vaccination and sanitary regulations in all ports of call and corresponding certificates to be available on board, enabling the vessel to obtain radio free pratique.

If requested, Owners to provide Charterers with copies of any certificates/approvals.

Any time lost and all proven and directly related expenses resulting from Owners’ non-compliance with the above to be for Owners’ account and may be deducted from hire.”

This clause was concerned with the kind of certificates, approvals and vaccinations that the owners would be able to procure, arrange or ensure had been obtained in advance to be maintained on board for the purposes of the service, rather than the more transitory PCR tests in issue, the need for which only arose as a result of the master’s unexpected death during the course of the voyage and which were necessarily only valid for a limited period of time.

PCR tests obtained before the vessel set out on the voyage would have been of no assistance by the time the vessel reached Panama as the requirement of the Panamanian authorities was for tests to be undertaken on arrival. The vessel complied with the authorities’ requirements in producing the negative PCR test results for the crew and there was no question of any non-compliance by the owners under the clause.

3. cl.55. Off Hire

“… in the event of loss of time … caused by sickness of or accident to the crew … or capture/seizure or threatened detention by any authority/legal process … the hire shall be suspended from the time of inefficiency until the vessel is again efficient in the same and equidistant position in Charterers’ option and voyage resumed therefrom. All extra expenses incurred including bunkers consumed during a period of suspended hire shall be for Owners account …”

The requirement for the crew to provide satisfactory PCR test results did not amount to a detention or threatened detention of the vessel.” Detention”  involved something more than mere delay and required some element of restriction and restraint that was clearly not present here.

4. cl.58. Panama/Suez Canal

“Owners warrant that the vessel is fitted for the transit of the Suez and Panama Canal in loaded and/or ballast condition and complies with all and any regulations of the relevant canal authority and shall not be subject to any conditions of transit not customarily required by the relevant canal authority whether pursuant to their regulations or otherwise.

Should the vessel not comply with all warranties contained in this clause and/or any regulations or conditions of transit laid down by the relevant authority, Charterers may suspend hire for all time lost and Owners to pay all expenses arising as a consequence of Owners’ failure to comply with the warranty.”

The Tribunal held that the clause was clearly concerned with the fittings of the vessel and its suitability for transit of both the Panama and Suez Canals. It did not contain a provision and code dealing with the (ultimately unjustified) concerns about Covid-19 that arose following the death of the master.

Accordingly the vessel had not gone off-hire.

Charterparty Provision Capable of Creating A Claim in “Debt” or A Claim in “Damages”? That is the Question!  

Smart Gain Shipping Ltd v. Langlois Enterprises Ltd (The Globe Danae) [2023] EWHC 1683 (Comm)  

If the charterparty contains a clause that indicates that certain expenses are “always at charterers’ time and expense”, does that create a claim in “debt” for the benefit of the owner or claim in “damages” especially if expenses are incurred after the chartered vessel is redelivered? This is an interesting question as in the latter case, the owner needs to prove its loss to be successful in its claim. This was the main contention in the present case.

Facts can be briefly summarized. The Globe Danae was trip chartered to carry metallurgical coke in bulk to Brazil with an estimated duration of 40 to 50 days. The charterparty contained a “hull fouling” clause (cl 86) which stipulated:  

“Owners not to be responsible for any decrease in speed/increase in consumption of the Vessel whether permanent or temporary cause (sic) by Charterers staying in ports exceeding 25 days’ trading in tropical and 30 days if in non-tropical waters. In such a case, underwater cleaning of hull including propeller etc. to be done at first workable opportunity and always at Charterers’ time and expense. After hull cleaning vessel’s performance warranties to be reinstated.”  

On the instructions of the charterer, the cargo was loaded in India but after rejected by intended buyers, the vessel remained in idle, still laden, in tropical water ports in Brazil for 42 days. After the cargo was delivered and contract came to an end, the owners undertook cleaning of the hull and propeller prior to delivering her to next employment. The owners made a claim against the charterers in the sum of US$ 74,506.70 for the loss of time of 2.29 days spent cleaning. The charterers rejected the claim arguing that their obligation to carry out cleaning came to an end on the redelivery of the vessel, so that the only remedy open to owners was damages and to be successful in that claim they had to prove that they suffered loss of hire as a result of hull fouling. The arbitration tribunal held that the owners’ claim was in debt (not merely in damages) for loss of time and they were successful accordingly. The charterers appealed.

The High Court dismissed the appeal. Sir Ross Cranston stressed that it was important to construe the relevant clause (cl 86) in the charterparty in a manner that would make commercial sense. Considering the fact that the charterparty in question was for a single trip, he indicated that the first workable opportunity to clean the hull of the vessel was likely to present itself after the termination of the charterparty (after redelivery).  On that basis, he reached the conclusion that it must have been the intention of the parties with this clause to create an obligation on charterers to undertake such cleaning at the charterparty rate regardless of when it takes place.

To support this reasoning, he drew support from Damon Compania Naviera v. EAL Europe Africka Lime GmbH (The Nicki R) [1984] 2 Lloyd’s Rep 186. This case concerned a charterparty for a roundtrip from Europe to West Africa which included a similar clause: “Charterers to be responsible for damage to the vessel… done by stevedores … all damages… to be repaired after the completion of the voyage at charterer’s expense but in owner’s time provided that such damage does not affect vessel’s seaworthiness.” Stevedores caused damage on the chartered vessel and after the conclusion of the voyage the charterers arranged for repairs at the discharge port. While the repairs took place, over a period of five days, the owners also carried out repair work on the vessel’s damaged engine. The owners claimed hire for the period of repair. Bingham, J, held that where the damage affected seaworthiness, the charterers were responsible for the time spent on repairs at the hire rate whether or not the charterparty had come to an end. It was also held that there was no deduction for engine repairs given that the claim was in debt, based on period of repairs, not on damages for breach of contract (hence additional repairs were irrelevant). Sir Ross Cranston had no doubt that cl. 86 in the present charterparty was analogous to the one in The Nicki R, except that the issue there was stevedore damage rather than marine growth that necessitated hull cleaning.      

Ultimately, this was yet another charterparty case that turned on the construction of a clause in the contract. Few would suggest that the solution reached is not in line with commercial realities. The judgment also serves as a reminder that any clause in a charterparty (particularly in a time and trip charterparty) stating that liability for a particular event/occurrence is “always at charterer’s expense” is likely to extend charterer’s exposure to expenses incurred even after redelivery as a clause of that nature is likely to be construed as one that capable of creating a claim in “debt” rather than a claim in damages.            

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.

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.

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.

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.