UK: "Time Thereby Lost" Under The NYPE Off-Hire Clause: Court Of Appeal Reinstates Conventional Approach

Last Updated: 29 January 2014
Article by Jonathan Elvey and Alex Chisholm

Minerva Navigation Inc v. Oceana Shipping AG; Oceana Shipping AG v. Transatlantica Commodities SA (M/V Athena) [2013] EWCA Civ 1723

The Athena was a dispute about the meaning of the familiar NYPE off-hire clause (clause 15).

The Commercial Court decision gave rise to a lot of controversy. It went against conventional principles for determining whether a vessel is off-hire. The talking point of the decision was the meaning given to the words "time thereby lost", allowing Owners to defeat an off-hire claim on the basis that there had been no loss of time on the "charter service overall". This treated the claim akin to one for damages, whereas the off-hire regime is different from damages; it operates irrespective of fault or breach.

However, the Court of Appeal has rejected this approach, set aside the Commercial Court decision and restored the award of the arbitrators. The award follows the usual way of assessing loss of time, namely in terms of the "service immediately required of the vessel", not "the charter service overall". The Court of Appeal considered this to be the correct legal test. Applying this test, it allowed Charterers to succeed on their off-hire claim.

The background facts

The vessel loaded cargo for Syria. Bills of lading were issued. The vessel sailed to Syria, but the cargo was rejected. The Charterers nominated a port in Libya instead (Benghazi). They ordered the vessel to the anchorage at Benghazi port roads to await further instructions before berthing and discharging. The change in destination, however, gave rise to a difficulty with the bills of lading that took nearly two weeks to resolve.

Meanwhile, instead of proceeding to the port road anchorage as ordered, the vessel proceeded to a position about 50 miles off Libya. There she began a period of drifting that lasted for 11 days, until the problem with the bills of lading was resolved. The vessel then proceeded to port to discharge her cargo.

Charterers claimed that the vessel was off-hire for the full drifting period. The off-hire provision read:

"... in the event of loss of time from ... default of Master ... or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost ..."

The arbitration award

The arbitrators agreed. They ruled that the failure to proceed to the port roads anchorage when ordered to do so constituted a "default of Master". Additionally, their view was that it resulted in a loss of time in performing the service immediately required of the vessel. They ruled that this was sufficient for the off-hire claim to succeed, despite their finding that the same amount of time would have been lost (due to the problem with the bills of lading) even if the vessel had anchored in the roads as ordered.

The Owners appealed.

The Commercial Court decision

The issue on appeal was whether a ship is off-hire under the NYPE clause merely because she is not efficient for the service then required, or whether the charterer also has to show a net loss of time resulting from that inefficiency.

Mr Justice Walker reversed the arbitration award and ruled in Owners' favour. He held that the ship remained on-hire while she was drifting.

The Judge started by formulating the same tests as the arbitrators. First, whether the off-hire event was one of the listed causes, which it was. Second, whether the cause resulted in a loss of time, i.e. whether the vessel could work as required.

The arbitrators said that she could not. The Judge said, however, that she could. He stated that the test depends on whether the words "time thereby lost" mean loss of time in performance of the charter service overall, not just the service immediately required. The service immediately required was to sail to the roads and to anchor there, waiting for discharge orders. She had not done so. The Judge looked further, however, extending the enquiry about lost time to the discharge operation and potentially beyond.

The Judge said that on that test, there was no loss of time. The vessel would have had to wait anyway because of the problems with the bills of lading. The ship was therefore on-hire for the drifting period.

Industry reaction

The Commercial Court decision gave rise to a modest commotion. The authors of Wilford (the bible on English law time charters) wrote to the London Maritime Arbitrators Association, urging a full review of the meaning of the NYPE off-hire clause, and pressing for recognition of the usual interpretation, namely that you look at whether the vessel can perform the service required at the time, not spread over some longer period.

The decision was subsequently appealed to the Court of Appeal.

The Court of Appeal decision

The Court of Appeal reversed the Commercial Court decision and found in Charterers' favour. The vessel was held to be off-hire.

All three Appeal Judges said that the arbitrators were correct in their ruling and also in their reasoning. Loss of time is assessed in terms of the "service immediately required of the vessel". The service immediately required of this vessel during the drifting period was to proceed to the anchorage in the Benghazi roads and to await further instructions there. She did not go. Whether the same amount of time would have been lost for other reasons (the bill of lading issue) was not (said the Appeal Court) a relevant factor. Nor was what happened or did not happen later on.

Lord Justice Tomlinson gave two reasons for this approach. The first was that that is what the words in the off-hire clause mean. The second was that:

"...there are sound practical reasons for this approach. It avoids intricate calculations, enabling the parties to know where they stand without having to wait on events subsequent to the period of inefficiency, a consideration of primary importance bearing in mind the remedies available to the owners in the event that payment of hire is not made punctually".

In other words (in our words), the shipowner wants to know if he can call for the hire to be paid or not. If he cannot, he does so at his risk. If he can, however, and the hire is not paid, then most time charters give him a range of remedies: withdrawal, termination, liens and a suspension of performance. If he has to wait to see what happens down the line, he may lose those remedies.

Comment

We suggest that the Court of Appeal's decision is the right one. On the facts, the Charterers won – the vessel was off-hire. Next time, the application of the same reasoning to different facts could result in the Owners successfully arguing that the vessel is on-hire. The point is to have a simple practical test which fits the words of the off-hire clause; words that owners and charterers have used for decades in the standard time charters.

On one view, the reasoning of the Commercial Court is perfectly justified and sensible. Time would have been lost in any event. The Charterers had the same use of the vessel as if the off-hire event had not taken place. The Court of Appeal, however, pointed out commercial reasons for preferring the traditional reading. Further, as we stated at the beginning, there is the main legal reason. The off-hire clause is written as an independent code. It is supposed to apply without any questions of fault or breach. To that extent, it is mechanical and the parties know where they stand. If X happens and Y results, then the vessel is off-hire. If not, then she is not. In the Athena, the Court of Appeal confirmed that off-hire should be dealt with at a fairly simple operational level.

As always, English law provides for freedom of contract. Owners and charterers are free to amend future off-hire clauses in the light of the Athena decision. By and large, however, we doubt that they need to.

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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