UK: The London Commercial Court Rules that Vessel Chartered on NYPE Terms Remains on Hire Whilst Detained by Pirates

COSCO Bulk Carrier Co., Ltd v Team-Up Owning Co. Ltd [2010] EWHC 1340 (Comm) (The Saldanha)

In an important ruling for the maritime industry, Mr Justice Gross of the London Commercial Court has upheld the unanimous decision of an eminent arbitration tribunal that a vessel chartered on the NYPE 46 form which was seized by pirates remained on hire whilst under the control of the pirates.

In an Award on Preliminary Issues dated 8 September 2009, the tribunal had held unanimously that the vessel remained on hire during the period of detention and until it reached an equidistant position with the location at which it was seized. The arbitrators considered inter alia the extent and scope of the off-hire clause in the charter party and concluded that seizure of the vessel by pirates was not a peril covered by the wording of that particular clause.

The charterers appealed this part of the tribunal's decision. Mr Justice Gross has now upheld the arbitrators' position and dismissed the appeal. The successful owners were represented by Ince & Co. The charterers have been refused leave to appeal to the Court of Appeal.

Factual and contractual background

The m/v Saldanha was seized by Somali pirates on 22 February 2009 whilst sailing in a laden condition through the International Recommended Transit Corridor in the Gulf of Aden. The vessel was taken by the pirates to Eyl where it was detained by the pirates until 25 April. The vessel reached an equidistant position with the location at which it was seized on 2 May.

The charter was on the NYPE form and included the familiar off-hire Clause 15 in the following terms :

The words "default and/or" and "including strike of Officers and/or crew or deficiency of" were amendments to the standard wording.

The Charterparty terms also included a "bespoke" clause 40 dealing with seizure, arrest, requisition and detention of the vessel, as well as a put-back clause and the CONWARTIME 2004 clause.

The Issues

It was common ground that the charterers were required to pay hire for the use of the ship unless they could bring themselves within the ambit of the off-hire exceptions. If unable to do so, the risk of delay was to be borne by the charterers. The charterers sought to argue that the vessel was off-hire on several grounds. These are dealt with individually below.

Average Accident

The charterers argued that detention by pirates amounts to "detention by average accidents to ship or cargo". They submitted that the capture of the vessel, albeit planned in advance and a deliberate act on the part of the pirates, was a fortuity so far as the crew and the vessel were concerned. Mr Justice Gross disagreed and endorsed the tribunal's findings, namely that heavily armed pirates attacking and seizing a vessel was not an accident, let alone an 'average accident' to the ship; and that an 'average accident' to ship necessarily means an accident that causes damage to the ship, as stated by Kerr J (as he then was) in The Mareva A.S. [1977] 1 Lloyd's Rep 368. As the tribunal had put it,

Furthermore, whilst the wording 'average accident' points towards an insurance context, the judge stated it does not follow that 'average' in this context is simply to be equated with a peril ordinarily covered by marine insurance, such as the risk of piracy.

Default and or Deficiency of Men

The charterers argued that the phrase "default and/or deficiency of men" encompasses errors, alternatively negligent errors, by the master and crew. They sought to argue that the ship's officers and crew had failed to take adequate anti-piracy precautions before and during the attack, that those alleged failures were a significant cause of the vessel being seized, and that such alleged failures fell within the scope of the 'default of men' exception.

The owners vehemently dispute that there were any such failings as alleged and should it prove necessary in due course, the tribunal will be asked to consider the facts and circumstances of the seizure and make a finding in this regard. Nonetheless, solely to allow for the determination of the preliminary issues, the tribunal proceeded on the assumption that the alleged failure on the part of the officers and crew was a significant cause of the vessel's seizure and detention.

Both the arbitration tribunal and the judge rejected the charterers' argument that 'default of men' in clause 15 includes any failure by the Master and crew to perform their duties or any breach by them of their duties. Whilst it was accepted that the natural meaning of 'default of men' was capable of including a negligent or inadvertent performance of duties by the Master or crew, both the arbitrators and the judge decided that a narrower construction should be applied to the wording. In particular, the words "default and/or" and "including strike of Officers and/or crew or deficiency of" were added to the standard wording of the off-hire clause to meet a particular mischief, namely the refusal of officers and crew to perform duties, whether or not amounting to a full-scale strike.

Mr Justice Gross also observed that accepting the charterers' construction would result in a startling alteration to the bargain typically struck in time charterparties as to the risk of delay because it would follow that on almost every occasion when the Master or crew negligently or inadvertently failed to perform their duties causing a loss of time, a vessel would be off-hire under the 'default of men' wording. It was noted that such an argument had never been advanced in any previous cases.

Any Other Cause

The charterers argued that seizure by pirates falls within the sweep-up provision "any other cause". The charterers based this argument on several alternatives, all of which were rejected by the judge. Inter alia, the judge labelled as "unreal" the charterers' submissions that the crew's failure to carry out their duties under duress of pirates was equivalent to a refusal to perform those duties. With regard to average accident, he dismissed the contention that a fortuitous occurrence normally covered by marine insurance which happens not to have caused damage would fall within "the spirit" of clause 15 and be caught by the catch-all wording. In addition, the judge dismissed the suggestion that there was only a "fine distinction" between the narrower and wider constructions of 'default of men', still less a distinction that would bring the charterers within the sweep-up wording.

Finally, the judge observed that it was telling that bespoke clause 40 dealing with the risk of seizure, arrest, requisition and detention did not extend to cover seizure by pirates.

Comment

Mr Justice Gross confirmed that, in his view, seizure by pirates is a "classic example" of a totally extraneous cause that falls outside of the scope of the standard NYPE off-hire clause. However, had the wording of clause 15 been qualified with the addition of "whatsoever" after the words "any other cause", it is conceivable that the decision might have gone the other way. Parties contracting on the basis of NYPE time charter wordings should therefore consider closely the wording of their off-hire clause to achieve the desired allocation of risk.

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