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Piracy and the issue of off-hire

07.06.2019 Maritime

Antonia Jackson

Antonia Jackson Partner

Eleanor Dickens

Eleanor Dickens Associate

Eleni Shipping Ltd v. Transgrain Shipping BV (Eleni P) [2019] EWHC 910 (Comm) 

The Court has considered whether the Vessel in this case was off-hire as a result of her capture by Somali pirates, such that the Charterers were relieved from paying hire in excess of US$4.5 million. The parties disagreed on the effect and meaning of two additional typewritten charterparty clauses: clause 49 headed “Capture, Seizure and Arrest” and clause 101 headed “Piracy Clause”. The Court held that pursuant to clause 101, but not clause 49, the Vessel was off-hire.

The background facts

Eleni Shipping Ltd (“Owners”) time-chartered the Vessel to Deiulemar Shipping SpA (“Deiulemar”), who in turn sub-time-chartered the Vessel to Transgrain Shipping BV (“Charterers”). The sub-charterparty was subject to English law and, amongst other things, provided:

“Clause 15 –

That in the event of the loss of time from…detention by average accidents to ship or cargo….the payment of hire shall cease for the time thereby lost…Only amounts not in dispute are allowed to be deducted from the hire. (See Clause 49)…

Clause 49 – Capture, Seizure and Arrest

Should 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, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents …

Clause 101 – Piracy Clause

Charterers 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...”

In late April 2010, the Vessel was ordered to load a cargo of iron ore at a port in Ukraine for discharge at Xiamen, China. The Vessel transited both the Suez Canal and Gulf of Aden without incident and proceeded into the Arabian Sea, where she was attacked and captured by pirates on 12 May 2010. The Vessel was released by the pirates seven months later, on 11 December 2010, and after emergency repairs proceeded to China to discharge her cargo. She was then re-delivered under the sub-charterparty on 18 January 2011. Following the Vessel’s re-delivery, disputes arose under both the head and sub-charterparty. However, for reasons not relevant in this instance, Deiulemar’s claims against the Charterers under the sub-charterparty were assigned to the Owners.

In arbitration, the Owners advanced various claims against the Charterers amounting to approximately US$5.6 million. These included a claim in excess of US$4.5 million for unpaid hire for the period between the Vessel’s capture and 25 December 2010 (when the Vessel was again equidistant from her destination). The Charterers denied liability for this claim on the basis that the Vessel was off-hire during this period, pursuant to clause 49 and/or clause 101.

The majority of the Tribunal agreed with the Charterers and rejected the Owners’ claim for unpaid hire on the basis that the Vessel was off-hire under both clauses 49 and 101.  The Owners appealed under s.69 Arbitration Act 1996, arguing that the Tribunal had made an error of law.

The Commercial Court decision

The Court allowed the Owners’ challenge on clause 49, but dismissed the challenge on clause 101.

Clause 49

The Court preferred the Owners’ construction that each of the words “capture[d]”, “seized”, “detained” and “arrested” were governed and qualified by the following words “by any authority or any legal process”. This was on the following bases:

  • This was the clear meaning of the language of the clause. In particular, if “arrested” was the only event qualified by the words “by any authority or any legal process”, the latter words would be unnecessary. The Court also noted that neither the Owners nor the Charterers could suggest how an arrest could occur other than by way of one of these two methods.
  • ­The Charterers’ alternative construction, i.e. that the words “by any authority or any legal process” did not qualify “detained” etc., was inconsistent with the limited type of incidents amounting to an off-hire event under clause 15 (“detention by average accidents to ship or cargo”). The clause 15 qualification would be rendered inoperative if the effect of clause 49 was to treat any detention as an off-hire event.
  • ­The Charterers’ construction would lead to “surprising and uncommercial results”, as the natural meaning of detention of a vessel is anything that prevents its movement, whether physically or in practice. Thus, if the Vessel being “detained” was a freestanding and unqualified off-hire event under clause 49, the Owners would bear the risk of loss through various circumstances where the risk was traditionally borne by a charterer under a time charterparty. For example, where the vessel is detained at a berth due to weather, port conditions or congestion.
  • ­The Court did not accept the Tribunal’s reasoning that as “captured” was no longer an act which an “authority” might be involved in, it had to be a freestanding exclusion. The Court noted that as a matter of ordinary use of language, capture does not necessarily indicate the use of force. It also noted previous cases which demonstrated that capture by a governmental authority or through legal process was not an impossibility.

The Court further held that in the event that clause 49 could be construed both ways, any doubt would be resolved in the Owners’ favour and the Charterers would have failed to bring themselves within a clear exception to the obligation to pay hire.

Clause 101

The Court agreed with the Tribunal that clause 101 was operative if the threat/kidnap took place within the Gulf of Aden, however that was defined, “or as an immediate consequence of [the Vessel] transiting or being about to transit the Gulf”.

This was because:

  • The Tribunal’s finding of fact that the expression “Gulf of Aden” was not capable of being given a meaning by way of any geographical definition in the context of a charterparty of this kind was not open to challenge under s.69. Accordingly, this finding of fact was fatal to the Owners’ construction that the third sentence of clause 101 put the Vessel off-hire only if the kidnap or threat of kidnap by piracy took place during transit of the Gulf of Aden, which was a finite geographical area capable of identification;
  • ­Clause 101 enabled the Charterers to trade the Vessel through the Suez Canal. In contrast, the Conwartime 2004 clause might have permitted the Owners to refuse to do so on account of the risk of piracy associated with a transit of the Gulf of Aden. This in turn would have made the Vessel less attractive commercially. Therefore, it was to the Owners’ benefit to agree to Gulf of Aden transit in exchange for the commercial advantage of being able to offer the Vessel for such service i.e. a potentially increased daily rate of hire. Clause 101 thus allocated the risk of a transit of the Gulf of Aden, with the Charterers to bear the additional costs and the Owners to bear the risk of delay from detention by pirates (or the threat thereof) as a consequence of such transit; 
  • ­There was no evidence or finding by the Tribunal that extra premium (or crew bonus payable) by the Charterers under clause 101 was tied to a single and definable area, so that such payments arose by reason of the transit of the Gulf of Aden and not by reference to a specific geographical area; and
  • ­The findings by the Tribunal in their Award showed that the parties would have regarded a transit of the Gulf of Aden as exposing the Vessel to a risk of delay from detention by pirates as existing beyond what might be understood as the Gulf of Aden itself.

Comment

The Court’s comments provide a helpful reminder that:

  • When considering the effect of contractual clauses, in addition to analysing the language used, the Court will consider the commercial and business sense behind the clause and the allocation of risks under a time charterparty more generally.
  • ­An appeal under s.69 is concerned with an error of law, so the Court will not re-open a tribunal’s finding of facts.

Article authors:

Antonia Jackson Eleanor Dickens