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Consecutive time charters - check your contract terms

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London Arbitration 18/14 – LMLN, 16 October 2014

If the vessel’s hull is fouled during a charter and there is no opportunity to clean it before delivery under the follow-on charter to the same charterer, is the owner liable for the underperformance during the second charter? According to the Tribunal in London Arbitration 18/14, on the facts of that case, the Owners were indeed liable. 

The background facts 

The vessel was fixed for a time charter trip on the 1946 NYPE form. Rider clause 128 stated that “Owners not to be responsible if the vessel under the currency of this charter party stays at port or anchorage or any other place for more than 28 days and therefore vessel’s speed, due to bottom fouling which may have formed to the ship’s hull as a direct result of such prolonged stay, is reduced and/or consumption increased.  In case of need for underwater cleaning same to be for Charterer’s account in terms of time and expenses”. 

The vessel’s hull became fouled with marine growth as a result of her spending 48 days waiting, loading and remaining at the port of Morowali, Indonesia during the first charter. 

Towards the end of the prolonged stay, the Owners advised the Charterers that the hull may have been fouled, that the prolonged stay clause was activated by this and that the Owners would be conducting an underwater inspection at the discharge port (Lianyungang, China). A week later, before sailing from Morowali, the parties agreed a follow-on charterparty in direct continuation, on substantially the same contractual terms. 

Following discharge at Lianyungang, an underwater inspection confirmed that the hull was fouled.  However, it was not cleaned. The vessel sailed in ballast to Indonesia under her follow-on charter, loaded a cargo of nickel ore and discharged it at Lianyungang. 

The Owners claimed reimbursement of the Charterers’ deduction of (1) US$21,020.10 for the lost time and IFO/MDO overconsumption during the first charter; and (2) US$12,287.94 for the lost time and IFO/MDO overconsumption during the second charter. The Owners also claimed US$4,500 in lieu of hold cleaning on redelivery and US$2,900 for stevedore damage during discharge under the second charter. 

The arbitration award 

As for the underperformance during the first charter, the Tribunal held that this was for the Charterers’ account under clause 128. Therefore, the Owners’ claim for reimbursement of the Charterers’ US$21,020.10 deduction succeeded. 

As for the underperformance during the second charter, the Tribunal held that this was for the Owners’ account:

  1. There was no basis for the Owners’ argument that the Charterers were estopped from claiming in respect of the underperformance on the alleged basis that the second charter was in direct continuation of the first and there was no time for the  hull to be cleaned. 
  2. When the second fixture was concluded, the Owners were aware that the hull may have been fouled during the prolonged stay. Yet they fixed the vessel on identical terms to the first charterparty, taking the risk that the vessel might not be able to meet the (identical) speed and consumption warranties by reason of the hull fouling.  Indeed,  they may even have intended to clean the hull during the ballast voyage under the second charter (but did not do so, resulting in underperformance for the remainder of that charter). 

However, the Charterers’ deduction for MDO overconsumption during the second charter had to be returned to the Owners because the lack of a reference to MDO consumption in the charterparty performance description meant that the Owners had given no MDO consumption description at all. Furthermore, the lower IFO overconsumption figure reported by the Charterers’ router prevailed over their own figure, and their time loss figure had to be reduced to factor in the address commission.  Finally, the Owners’ claim for the US$4,500 and US$2,900 additional claims succeeded in full.  

The Owners therefore recovered US$37,623.28 (80%) of their US$45,386.86 total claim and were awarded their costs in full. 

Comment 

When fixing consecutive time charter trips with the same charterer, the parties should give thought to the terms of the follow-on charterparty, or agree the further trip as an extension of the existing charterparty. Otherwise, problems may arise.  An owner should certainly not be quick to assume that underperformance during a follow-on charter resulting from a prolonged stay during the preceding charter (for which the charterer is liable under the first charterparty) will be for the charterer’s account. On certain facts it may be, but London Arbitration 18/14 is an example of the owner being liable for such underperformance. 

Jamila Khan

Jamila Khan Partner and Head of Office, Piraeus

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