Australia: Charterers entitled to withhold hire due to underperformance of vessel

In brief - Carrier found liable for unreasonable delays due to slow steaming

Arbitrators find that charterers are entitled to withhold part payment due to owners' breach of utmost dispatch warranty and this decision is upheld on appeal.

Charterers claim breach of clause 8 in NYPE Form of Charter Party

The case Bulk Ship Union SA v Clipper Bulk Shipping Limited (The "Pearl C"), (2012) 2 Lloyds Rep 533 concerned a claim by charterers against owners that there had been a breach of clause 8 in the NYPE Form of Charter Party. That clause requires that "the Captain shall prosecute his voyages with the utmost dispatch".

The owners claimed US$624,276.77 in respect of the balance of hire due under the charter, which had been for a period of about 9-12 months. The charterers claimed to be entitled to withhold hire for underperformance on the basis of the owners' breach of the utmost dispatch warranty in clause 8 and an entitlement to deduct for time lost due to slow steaming under the first part of the Off Hire clause, clause 15.

The arbitrators held that the charterers were entitled to withhold US$118,974.69 by reason of the slow steaming of the vessel, both by reason of the failure to proceed by way of utmost dispatch and by reason of the fact that the claim fell within the first part of clause 15; and the charterers were obliged to pay the owners US$505,302.08 of the withheld funds.

Charterers entitled to deduct time lost due to slow steaming

Clause 29 of the Charter Party identified that the vessel had a ballast and laden speed of "about 13 knots". It was common ground between the parties that the performance warranty applied to the capacity of the vessel when she was delivered into the Charter Party's service and was not a continuing warranty.

The Arbitration Tribunal held that there had not been a breach of the warranty, but there had been underperformance on three of the vessel's sixteen voyages, by reason of the fact that owners were in breach of clause 8 and the charterers were entitled to deduct time lost due to slow steaming under the first part of the Off Hire clause, which read as follows:

...that in the event of the loss of time from deficiency, sickness, strike, accident or default of Master Officers or crew, or deficiency of men or stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, dry docking for the purpose of examination or painting the bottom, or by any other cause preventing the full use of the vessel to the Charterers, the payment of hire shall cease for the time thereby lost...

Owners argue that speed warranty only applies at commencement of charter

On appeal, the owners argued that the arbitrators, in finding that there was a breach of clause 8, had reached that conclusion in reliance on the speed warranty in clause 29, which only applied at the commencement of the charter. Popplewell J held that the Tribunal had reached the conclusion:

...not only on the basis of a failure to reach the warranted speed on each of the three voyages, but also on the basis that, on the evidence before it in relation to this vessel and the conditions which this vessel encountered, there was no other realistic explanation for a vessel which was capable of achieving the warranted speed at the moment she was delivered into the charter party failing to achieve that speed on the subsequent voyages. This is a legitimate process of reasoning and one which involves no error of law.

RPM of vessel's engine set below its capacity

In their reasoning processes, the arbitrators had identified three possible reasons why the vessel had not achieved the warranted speed during the three voyages. They were: that it might have been due to mechanical or technical problems; meteorological or oceanographic phenomena; or due to the crew's failure to prosecute the voyages with the utmost dispatch.

The arbitrators rejected the first two reasons. In the words of Popplewell J, the arbitrators found that:

...the rpm at which the vessel's engine had been set was less than that at which the engine was capable, during the three relevant voyages, and that was what caused the vessel to fail to achieve the speed set out in the performance warranty, a speed of which the vessel was capable throughout the period of service, including the three voyages in question.

No justification for failing to meet the speed which the vessel could reach

There was an express finding by the arbitrators that the vessel was capable of being operated with her main engine achieving 92 rpm, but she was in fact operated at 78-82 rpm.

The decision was accordingly justified by the arbitrators, Popplewell J held, on the basis that they had found that the vessel was capable of the warranted speed throughout the period, and therefore to fail to meet that speed without justification was a breach of clause 8 and the undertaking to proceed at reasonable dispatch.

Net loss of time clause could apply to delays

In order to defeat the Off Hire claim which the charterers made, the owners challenged the arbitrators' decision to the effect that slow steaming could come within the first part (which we have quoted above) of clause 15, as "the only part governing any claims in respect of reduction in speed" is in the second part. Popplewell J described the first part of clause 15 as a "net loss of time clause, and is apposite to extend to periods of partial interruption of the service in the sense of events interfering with the full working of the vessel sufficient to delay the service".

He regarded the clause in question as applying to delay, even where there has not been a total interruption. Popplewell J interpreted the words "during period of suspended hire" in clause 15 as referring to the "period of time lost by reason of the delay in the performance of the service" and accordingly he found no error in the decision of the Tribunal in this respect.

Contracts of carriage contain implied undertaking to carry out voyage with reasonable diligence

By way of commentary we note that there are implied terms in the absence of express provisions to the contrary, in contracts of carriage and one such is an implied undertaking to commence and carry out a voyage with reasonable diligence. This is reinforced in Australia's amended version of the Hague Rules in Article 4A which imposes a liability on a carrier for delay unless the carrier can bring itself within a nominated exclusion.

The amendment to the Hague Rules in that regard is clearly designed to make the carrier liable for unreasonable delays. This decision begs the question as to whether slow steaming, which causes delay, could be said to be unreasonable.

This decision certainly provides some support for such an argument. Carriers which deliberately engage in slow steaming need to ensure that their contracts of carriage permit them to do so and override any express or implied terms to the contrary.

Stuart Hetherington
Transport and logistics
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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