The quantification of damages for the loss of use of a ship
damaged in collision where her owner maintains and substitutes a
reserve ship for his damaged ship came up for determination
recently in Hong Kong, and in the modern day setting of a liner
operation run by a consortium of container ship owners. The case in
question was The Darya Bhakti in the Hong Kong Court of
Liner operators of container ships are committed to providing
regular services with scheduled sailing times and port rotations.
In order to maintain such services, they must have similar, and
ideally identical, ships available as replacements to provide cover
for those occasions when one of the ships in service has to be
withdrawn for repair. In earlier years, a suitable replacement ship
would often be readily available in the market for short-term
charter but the option of chartering-in has become considerably
more difficult with the increasing specialization of container
ships in terms of their carrying capacities, speeds and fuel
efficiencies. An increasing number of liner operators today
therefore are investing in reserve ships; that is, a sister ship
that is kept deliberately idle in order to be readily available for
use as a replacement when another of her sisters in service has to
be withdrawn for any reason, such as after collision.
Loss of use
Where a ship is damaged in collision, her owner is entitled to
claim damages for the loss of the use of that ship during the
period it is out of service undergoing repair (the period of
detention). Where the owner has no other ships available and
charters in a replacement ship to substitute for his damaged ship
during the period of detention, he can recover these chartering-in
costs as damages. What is the position, however, where the owner
keeps a reserve ship and elects not to charter in but to substitute
the reserve ship for the damaged ship?
Surprisingly, there are very few reported shipping cases that
directly address this issue and such cases as there are date back
to the early part of the last century and involve claims for loss
of use by non-profit making organizations. These cases do suggest,
however, that the owner of a reserve ship trading commercially for
profit is entitled to recover loss of use based upon the market
rate of hire for such a ship at the time of the collision. As the
authors of the leading textbook on collisions note:
"The case where a sister ship otherwise idle takes the
place of the damaged vessel must be distinguished from the
situation where a stand-by or reserve vessel is specifically kept
for that purpose. Here a claim will lie for substantial damages for
There is no clear English authority on the measure of
recovery, but US authority tends to give the reasonable rate of
charter hire for the 'spare boat'."
The Darya Bhakti
OOCL's vessel, OOCL China, was damaged in collision
with the Darya Bhakti whilst on time charter to MISC,
following which MISC stopped paying hire to OOCL. The liner
consortium of which both MISC and OOCL were then members –
the Grand Alliance -substituted the OOCL Japan, another
OOCL vessel and identical sister ship that the members of the Grand
Alliance had been keeping in reserve. OOCL subsequently claimed
damages for the loss of the use of the OOCL China based
upon the lost time charter hire for the period that the OOCL
China was out of service undergoing repair.
The owners of the Darya Bhakti argued that as OOCL had
sub-chartered back some of the slots on the OOCL China
from MISCand had not paid slot charter hire to MISC during the
detention period, and as all of the containers on board the
OOCL China were carried to destination by the OOCL
Japan so that the collision did not cause OOCL to suffer any
loss of freight income, OOCL's claim for loss of use had to be
reduced accordingly to take account of the "saved" slot
charter hire. The Court at first instance agreed, and this decision
was upheld by the Court of Appeal.
In reaching this conclusion, the Court at first instance appears
to have treated the OOCL Japan as an idle sister ship
rather than as a reserve ship; and the Court of Appeal considered
this approach to be correct, surprisingly concluding that if the
OOCL Japan was a reserve ship, it was a reserve ship of
the Grand Alliance and not a reserve ship of OOCL.
The decision in this case is a particularly disappointing one,
not only for OOCL but for all liner operators. It is to be hoped
that there will soon be another opportunity for the common law
courts to re-visit this issue of reserve ships and the appropriate
method for assessing loss of use following a collision, but until
then...liner operators beware!
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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On 22 September 2016, the General Civil Aviation Authority of the UAE issued the new Civil Aviation Regulations Part IV – Foreign Operators Regulation. The FOR shall apply from 1 October 2016.
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