News / 07-09-2022 / London

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

The Court has recently dismissed a claim for wrongful arrest in an underperformance dispute and also given helpful guidance as to how speed and performance cases are to be approached.

The background facts

The defendant Charterers chartered the Divinegate from the claimant Owners for the carriage of pig iron from Latvia to New Orleans in October/November 2019. Charterers ordered the Vessel to proceed at eco-speed on the laden voyage. Following completion of discharge, considerable marine growth was observed on the Vessel’s hull and Charterers claimed that the Vessel’s performance was significantly affected, either due to hull fouling or Owners’ breach of their clause 8 (utmost despatch) obligations. Charterers sent a letter before action and did not pay the outstanding hire.

On 1 July 2020, Owners arrested the Pola Devora in Gibraltar to secure their claim. In support of the arrest, they relied on a publicly available Lloyd’s List Report which listed the beneficial owner of the Pola Devora as the defendant Charterers since 5 July 2019, with the registered owner being a Russian entity called Pola Rise LLC, also from that date. Prior to that, the registered and beneficial owners were listed as being GTLK Five Limited, Malta and PJSC State Transport Leasing Company (GTLK) respectively. Charterers contended that the arrest was unlawful because GTLK Malta held both legal and beneficial ownership of the Vessel at the date of the arrest and they produced a Seaweb report in support. On 6 July 2020, further documents were provided evidencing the fact that the Pola Devora was not owned by Charterers, following which the arrest was lifted and a Club LOU was put up as security for Owners’ claim.

Owners claimed for outstanding hire, bunkers and other expenses totalling nearly US$ 100,000. Charterers in turn sought deductions from hire and also claimed damages for breach of charter regarding the Vessel’s performance. A separate counterclaim was advanced for over US$ 70,000 in damages concerning Owners’ alleged wrongful arrest of the Pola Devora.

The Commercial Court decision

Speed and performance claim

Charterers contended that the Master’s failure to proceed at eco-speed amounted to a breach of (i) clause 15 (off-hire) as a default of the Master; or (ii) the clause 8 obligation to proceed with utmost despatch; or (iii) clause 1 to provide a vessel in every way fit for service; or (iv) the performance warranty.

The performance warranty contained in the fixture recap provided as follows (emphasis added):

"SPEED AND CONSUMPTION BASIS NO ADVERSE CURRENTS AND VALID UP TO AND INCLUDING DOUGLAS SEA STATE 3 / BEAUFORT FORCE 4

BALLAST: ABT 14KT ON ABT 20.5MT IFO + 0.1 MDO LADEN: ABT 14KT ON ABT 25MT IFO + 0.1 MDO… 'ABOUT' SHALL MEAN AN ALLOWANCE OF PLUS/MINUS 0.5 KNOTS FOR SPEED AND PLUS/MINUS 5 PER CENT FOR FUEL OIL/DIESEL OIL CONSUMPTION…

THE DESCRIPTION OF THE VESSEL'S SPEED APPLIES IN WEATHER CONDITIONS NOT EXCEEDING FORCE 4 ON THE BEAUFORT SCALE OR DOUGLAS SEA STATE 3, WITH THE VESSEL LADEN UNDERDECK TO HER SUMMER SALTWATER LOADLINE. ALL DETAILS ABOUT

ECO CONSUMPTIONS ON ABT BSS AND: BALLAST: ABT 13.0KT ON ABT 16.0MT IFO + 0.1 MDO LADEN: ABT 13.0KT ON ABT 20.5MT IFO + 0.1 MDO BALLAST: ABT 12.5KT ON ABT 14.5MT IFO + 0.1 MDO LADEN: ABT 12.5KT ON ABT 19.0MT IFO + 0.1 MDO ALL DETAILS ABOUT"

The parties differed on the appropriate method to be employed in assessing the Vessel’s performance. Owners contended that performance should be assessed conventionally, as per The Didymi, i.e. by reference to the Vessel’s speed during good weather. This speed is then extrapolated against the entire laden voyage, since if she underperformed in good weather she will do so in bad weather too. On the facts, there was no good weather period on the laden voyage to serve as the basis for a reliable assessment of the Vessel’s ability to meet the warranted performance.

Charterers, however, argued that the good weather method is inherently imprecise and suggested instead that underperformance could be established by reference to the Vessel’s measured RPM (revolutions per minute) which reflect the engine speed maintained by the crew. On the basis that the main engine was operated at 92 RPM or lower throughout the laden voyage, there was a breach of clause 8 irrespective of whether there were any good weather days against which to test the Vessel’s performance.

The Court preferred the “good weather” method put forward by Owners, suggesting that this method accurately reflected underperformance, including where the Master had unjustifiably not applied sufficient engine speed in breach of clause 8. In these circumstances, however, Charterers’ claim for time lost solely due to hull fouling would represent a double recovery (as underperformance by reason of hull fouling was contemplated by this method) and so was rejected.

On the facts of this case, the RPM method employed was found not to be reliable in identifying loss of time: it made incorrect assumptions as to the resistance on the hull and made no allowances for weather conditions being a reason for a reduction in engine speed, as well as ignoring the fact that there were some periods where the Vessel did achieve the warranted speed.

In applying the “good weather” method, the Court held that the Vessel had failed to meet the warranted speed of 12.5 knots in good weather and so there was underperformance giving rise to a loss of time of 16 hours. As such, Owners had failed to proceed with utmost despatch. Evidence from the Vessel’s logbook suggested that the engine had been operated at a lower speed to maintain her consumption below the charterparty warranty rather than in response to weather conditions and the weather conditions relied on by Owners were not sufficient to justify this lower speed.

Wrongful arrest

On the evidence, the Court found that Charterers were not the beneficial owners of The Pola Devora at the time of the arrest.

The test for wrongful arrest, as established in The Evangelismos, is that the arrest proceedings were commenced or continued in bad faith or with such gross negligence as implies malice. Owners’ conduct in making and maintaining the arrest was not in bad faith nor grossly negligent. There was a lack of clarity in the public documents surrounding the ownership of The Pola Devola and it would not have been obvious to Owners that the beneficial ownership of that ship was GTLK Malta, particularly in circumstances where Charterers were named on some public documents as beneficial owner. The Court concluded that Owners’ arrest based on the Lloyd’s List Report was a genuine but understandable mistake.

Further, Owners’ conduct after the arrest did not amount to any inference of malice. Although the ownership position was not resolved until the registration documents and charterparties for The Pola Devora were produced, Owners’ representatives acted reasonably in not recommending the release of The Pola Devora without exploring adequate security or payment into escrow.

Comment

Speed and performance claims commonly arise and will be familiar to shipowners, charterers and their Clubs. As this case demonstrates, they are frequently disputed due to differing ways in which weather, performance and consumption can be assessed, as well as the methodologies to be adopted. In this regard, the Court has given some helpful guidance as to how performance warranties should be approached and applied. Specifically:

• The wording of the charter should be applied as this should reflect the parties’ desire to achieve certainty and a commercial solution if speed and performance issues arise;
• The Court will adopt an approach which reflects commercial practice in assessing performance and the specific wording agreed by the parties, rather than imposing legal methodologies;
• The “good weather” warranty tests against a ship’s actual performance at sea during the charterparty, rather than adopting a paper calculation of the engine's capability. If a Master maximises the weather or currents (or fails to do so) then this is part of the vessel's capability as much as the capability of its engine or the condition of the hull during any period of review;
• The “good weather” method is conventional, but is not the only available methodology for making a claim for underperformance and does not bar alternative methods being used to claim compensation. However, where a charter contains a performance warranty, it is suggested the “good weather” method should be applied as it reflects the chosen benchmark for performance;
• Any alternative method must be consistent with the express wording of the performance warranty contained in the charter; and
• The “NO ADVERSE CURRENTS” wording in this charter suggests that any time spent sailing with adverse currents is not to be treated as good weather but time spent sailing with a positive current would be counted. If positive currents are to be deducted from an assessment against the performance warranty, they should be expressly excluded.

As to the arrest, assessing the true beneficial ownership of a ship is not always straightforward and it is not unusual for there to be a lack of clarity or errors in the information in the public domain. So long as the evidence and circumstances have been relied upon with an honest belief such that bad faith cannot be established, a party will not be found to have arrested a vessel unlawfully.