A summary of recent London Arbitration disputes: legitimacy of a proposed final voyage under a Time Charter; fixture recap incorporating Charterparty and berth operator’s rules; and a charterer’s responsibility where marine growth has been excessive on a hull during a prolonged port stay. Report by Deven Choudhary, Legal Manager (Newcastle) and Christopher Chane, Trainee Solicitor (London).
London Arbitration 13/21[1]
Legitimacy of the proposed final voyage under the Time Charter was in dispute, where the Owners had withdrawn the vessel from charterers’ service.
Facts
Claimant owners (the “Owners”) had time-chartered the vessel to the respondent charterers (the “Charterers”) under a head-charterparty (the “Head Charter”).
Clause 14(c) of the Head Charter provided:
“Consequential Damages – Neither party shall be liable to the other for any consequential damages whatsoever arising out of or in connection with the performance or non-performance of this Charter Party …Consequential damages’ shall include, but not be limited to, loss of use, loss of profits, shut-in or loss of production and costs of insurance, whether or not foreseeable at the date of the Charter Party.”
The charterers sub-time-chartered the vessel to a third party (the “Sub Charter”).
Disputes arose between the parties as to the legitimacy of the final voyage under the Head Charter, as Owners withdrew the vessel from charterers’ service basis that it was not a legitimate voyage.
Arguments
Owners commenced arbitration proceedings and submitted that Charterers had failed to pay hire and other sums due under the Head Charter.
Charterers argued that Owners had committed a repudiatory breach of the Head Charter by withdrawing the vessel early, as a result of which the Charterers suffered loss and damage which exceeded Owners claim. They submitted that Owners’ withdrawal of the vessel caused their sub-charterers to terminate the Sub Charter, causing damage and loss to Charterers.
Owners argued that clause 14(c) exempted liability for all three heads of loss claimed by the Charterers as they were all types of consequential loss, these being loss of hire and a demobilisation fee under the sub-time charter and loss of profit resulting from a loss of tender. An exemption from liability for consequential loss would be interpreted as an exemption from such loss as was within the second limb of Hadley v Baxendale.[2] The second limb of the rule in Hadley v Baxendale covered damage which the parties might reasonably have contemplated because of special knowledge.
The prima facie measure of loss for prematurely withdrawing a vessel from a time charter was the price of obtaining a substitute charter for the remainder of the charter period. This was not claimed by Charterers. Clause 14(c) also restricted Charterers’ ability to recover damages for ‘loss of use’ (which would have been a direct and natural consequence of the withdrawal of the vessel) as this was included in the definition of “consequential damages”.
Issue
The preliminary issue identified by the Tribunal was that:
“Whether clause 14(c) of the [head] Charterparty exempts Owners from liability for all three heads of loss claimed by the Charterers, viz. losses in respect of hire and demobilisation fee under the [sub-time charter] and loss of profit resulting from a loss of tender.”
Held
The Tribunal ruled that the three heads of loss counterclaimed by Charterers were “consequential losses” within clause 14(c) of the Head Charter. Therefore, Charterers’ counterclaims were debarred, and Owners’ claim for outstanding hire succeeded in full.
London Arbitration 15/21[3]
Fixture recap incorporating Charterparty and berth operator’s rules. In that scenario, if there are differences in terms, specifically about commencement of laytime, then which terms to be preferred for calculating demurrage.
Facts
Owners had a claim for demurrage, which was incurred at the loading port, Davant, on the Mississippi. Charterers however denied liability and argued that laytime was saved and they were, accordingly, entitled to dispatch.
The Charter recap provided materially as follows:
“- LOAD PORT: 1SP UBT DAVANT-USA (ATTACHED UBT RULES SHALL INCORPORATE WITH THIS CP
…
- SHOULD THE BERTH BE OCCUPIED OR SHOULD THE VESSEL BE PREVENTED FROM PROCEEDING TO THE BERTH AFTER HER ARRIVAL AT OR OFF THE PORT NOTICE OF READINESS MAY BE TENDERED BY TELEX, FAX WWWW
- AT BOTH ENDS PORT LAYTIME SHALL COMMENCE TO COUNT 12HRS AFTER VALID NOR IS TENDERED UNLESS OPERATIONS SOONER COMMENCED. IN CASE SOONER COMMENCED, ACTUAL TIME USED TO COUNT.”
[“WWWW” to mean “wibon, wccon, wifpon, wipon”, i.e. “whether in berth or not, whether customs cleared or not, whether in free pratique or not, whether in port or not”.]
The UBT Rules were attached to the fixture recap and provided:
“2.2 NOTICE OF READINESS
In the case of an Ocean Vessel to be loaded, issuance of the Notice of Readiness shall mean that the Ocean Vessel…(2) is located at the Berth or Closest Available Anchorage (as defined in section 2.5 below); and (3) is ready and suitable in all respects to receive the Cargo in all holds to be loaded…
…
2.5 CLOSEST AVAILABLE ANCHORAGE
Ocean Vessels filing a Berth Application to utilize the Terminal facilities normally will be required to anchor at Davant Anchorage (Mile 53.5-54.5 LDB), or the closest available anchorage to Davant, Louisiana.”
The vessel arrived at the Southwest Pass around 14.00 on 13 April but could not berth because of congestion. The owners tendered a notice of readiness (‘NOR’) at 15.24 on the same day.
The vessel then waited until midday on 17 April, when a pilot boarded and took her to an anchorage at mile 51, arriving there in the evening.
Shortly after that time, and once the vessel had obtained a hold pass certificate, a second NOR was tendered, expressly without prejudice to the earlier one.
It was not until 24 April that the vessel berthed, and at that time a third NOR was tendered, again without prejudice.
Owners argued that the first NOR was valid, and that time therefore started to count since then.
Charterers however, argued that time only started to count on the vessel’s berthing, as provided in the UBT Rules.
As per UBT rules, the vessel had to be either at the loading berth or at the closest available anchorage and ready and suitable to receive the cargo before a valid NOR could be tendered.
Charterers further relied on the terms of the charter as incorporated by the fixture recap, which provided:
Clause 1, “The said Vessel shall, proceed to the loading port(s) or place(s) stated in Box 10”
Clause 6, “If the loading/disch berth is not available on the Vessel’s arrival at or off the port of loading/discharging, the vessel shall be entitled to give notice of readiness within ordinary office hours on arrival there, whether in free pratique or not, whether custom cleared or not.”
Clause 41, “In any case the notice of readiness to load must be tendered once:
- has arrived at the port limits
- is physically ready in all respects to load or discharge the nominated cargo.”
Charterers’ argument was that the vessel had not tendered a valid NOR as the Southwest Pass was not the closest available anchorage. The deletion in clause 1 of the incorporated charter meant that the vessel had to proceed to the load port itself for a valid NOR to be tendered and so time should only start once the vessel had berthed. They further argued that the vessel had not, in any event, been ready to load until she had been inspected, which only occurred on 17 April.
Issue
The issue before the Tribunal was the effect, if any, of the incorporation into the fixture of what were referred to as UBT (United Bulk Terminal) Rules, which were rules imposed contractually by the berth operators on users of the berth.
Held
The position under English law was that where an incorporated document conflicted with the terms of the primary agreement entered into by parties, the conflicting terms had to give way to those in the primary agreement with which they were inconsistent (The Linardos).[4] The Tribunal also considered The Agamemnon[5], on behalf of Charterers but did not consider it valid for the current set of facts.
The Tribunal found that the UBT Rules cited by Charterers conflicted with the terms of the primary agreement as contained in the recap and reinforced by the incorporated charter terms. The UBT Rules were designed to govern contractual relationships between the terminal and users of the berth, therefore great caution had to be exercised in reading them into a charterparty so only those provisions in the Rules which were relevant to and compatible with the charter agreement were given effect to.
The vessel therefore validly tendered NOR at the Southwest Pass on 13 April, and the UBT Rules did not affect this position. Accordingly, Owners’ claim succeeded, and they were awarded the claimed amount plus interest and costs.
Key take-away
Parties and specially Charterers need to be careful about the clauses on which they seek to rely for disputing demurrage. As sometimes terms agreed with third parties might not be binding under the Charterparty with Owners. If parties wish for incorporated terms to take precedence, they should provide so clearly in the main negotiated contract. Standalone clauses which determine the order in which contractual provisions take effect can provide clarity on the hierarchy of terms.
The Tribunal interpreted a charterparty clause requiring Charterers to clean the vessel’s hull from excessive marine growth during prolonged port stays, expanding its scope and the Charterers’ liability even post vessel delivery.
Facts
Owners chartered the vessel to Charterers by way of a time charter on an amended NYPE form for a 30-35 day voyage via the North China to Japan range to India, with following terms:
“10. … hire shall continue until the hour of the vessel’s redelivery in like good order and condition, fair wear and tear excepted.
…
104. Prolonged Port Stays
… If the vessel is encountering prolonged stay, minimum 25 days in port and/or at anchorage, and there is strong reason to believe that the vessel’s hull has acquired excessive marine growth affecting vessel’s speed/consumption due to the stay at the specific port and/or anchorage, Owners are to arrange for a diver inspection. Should the result of this diver inspection indicate that there is excessive marine growth on the hull, which is directly related to this specific port/anchorage stay, Owners to arrange underwater scrubbing of the hull in Charterers time and at Charterers expense, prior to vessels departure from the port or anchorage, if same can be done without unreasonable delay.
If the underwater scrubbing is not available or cannot be carried out at the port in question, same to be carried out in Charterers time/expense in the next convenient port.”
As per Charterers’ order, the vessel arrived at an Indian port on 22 June and remained until 27 July, a stay of more than 25 days.
On 20 July, Charterers asked the master to find evidence of any marine growth and requested Owners to obtain a quotation from a hull cleaning company. Owners provided a quote for USD 23,287.50 and cautioned that it might not be suitable to conduct the hull cleaning due to monsoon season. Charterers intended to redeliver the vessel after the completion of discharge and proposed to pay a lump sum of USD 8,000 as an amicable settlement in lieu of underwater cleaning which was accepted by Owners on account.
On 27 July, Owners sent photographs of the hull to Charterers, noting that per the Master’s account the hull was believed to be foul. Charterers nevertheless proceeded to redeliver the vessel on 27 July without any divers’ inspection or cleaning.
Owners then had to arrange for a 15nm diversion in the vessel’s next employment to an intermediate port for the purpose of underwater inspection. After 10-15% of the hull was found to be covered in 2mm barnacles cleaning was carried out, which in addition to time and bunkers lost and port expenses amounted to a cost of USD 22,850.63.
Owners commenced arbitration proceedings against the Charterers seeking damages in the amount of USD 20,690.88, but giving credit for the USD 8,000 paid by Charterers.
Issue
Whether the term “excessive marine growth” naturally connoted a very significant amount of marine growth and could not be construed as meaning “any marine growth at all, however small”.
Whether fouling occurred during the vessel’s prolonged stay at the Indian port and whether it affected the vessel’s speed/consumption, and justified the diversion.
Arguments
Owners argued that clause 104 implied that Charterers would indemnify the Owners against loss suffered by Owners arising out of Owners’ compliance with Charterers’ orders. Basis the terms of the charterparty, Owners had not consented to bear the loss resulting from the vessel being redelivered with her hull fouled with excessive marine growth due to the prolonged stay exceeding 25 days at the Indian port.
Charterers’ contention was that clause 104 provided a complete code covering the present dispute. The clause provided that the Charterers were only to pay for underwater cleaning where:
(a) the vessel had stayed at one place for 25 days or more;
(b) there was strong reason to suspect that the vessel’s hull had acquired excessive marine growth of such a nature as to affect the vessel’s speed and/or consumption;
(c) the Owners had arranged a diver’s inspection at that place (noting that while the clause made provision for cleaning to take place elsewhere it did not do so in relation to inspection);
(d) the diver’s inspection found excessive marine growth; and
(e) the excessive marine growth was attributable to the vessel’s prolonged stay at that place.
Held
The Tribunal looking at the language of clause 104 considered that:
- the parties had understood and agreed that Charterers would be liable for the time and expense of cleaning the vessel’s hull if it became fouled as a result of a port stay of 25 days or more;
- while Charterers were correct in pointing out that although clause 104 anticipated that underwater cleaning might be carried out at a port other than that where the fouling occurred, the provision for the arrangement of a diver’s inspection was limited to the place at which such fouling was said to have occurred; and
- It was unrealistic to arrange a diver’s inspection at the Indian port prior to redelivery and it was not a strict pre-condition to any recovery from Charterers. On the true construction of clause 104 Owners’ right to recover time and expense was not precluded by the fact that the inspection could for practical reasons only take place after redelivery (especially with Charterers insisting on redelivering the vessel when they did rather than waiting for conditions to improve).
On “excessive marine growth”, the Tribunal held that:
- “excessive” clearly did not mean “any” growth. The most appropriate construction of the term was “any growth which has a measurable impact on the performance of the vessel and/or which significantly shortens the period until the next cleaning”;
- if there was a strong reason to believe that the hull was fouled with “excessive marine growth” (as that term had been construed by the Tribunal), this required an underwater inspection to verify the position. On circumstances, there should be no criticism of the Owners’ decision to make the small diversion to the intermediate port for an underwater inspection; and
- no owner would choose to clean unnecessarily because of the effect of cleaning on the anti-fouling treatment on the hull so this and the diversion was an indication that cleaning was likely necessary; and
- on the facts the fouling process had started before the vessel’s arrival at the intermediate port. The relatively modest growth suggested it was of recent origin and most likely from the stay at the Indian port rather than earlier ports of call.
The decision to clean was therefore reasonable.
The requirement in clause 104 was that there should be “excessive marine growth affecting vessel’s speed/consumption due to the stay”. On that point there was some evidence in the form of a weather consultant’s report which showed an improvement in the vessel’s good weather performance by 0.33 knots after cleaning. That was sufficient to establish that the fouling that existed satisfied the necessary requirement of a measurable impact on the vessel’s performance.
The Owners’ claim succeeded in the amount claimed of US$22,850.63, plus interest and costs.
Key take-away
As is often the case, much here turned on the facts of the case and the specific wording of the clauses in the charterparty. As a finding of fact, the Tribunal found based on the evidence that there was excessive marine growth affecting vessel’s speed/consumption as a result of the prolonged stay at the Indian port. As such, charterers were responsible for the time and costs of cleaning the hull.