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On 21 June 2012, the High Court handed down its
decision1 on a time charter performance case where the
issue was whether, in circumstances where the vessel has performed
within the consumption warranty of "about 'X'
metric tons IFO", i.e. a daily consumption of IFO between
"X –5%" and "X +5%" metric tons
(applying the 5% tolerance for the word
"about"), the saving is to be calculated by
reference to the lower figure of "X –5%" metric
tons or the higher figure of "X +5%" metric tons.
Insofar as a claim by the Charterers for underperformance
(i.e. over-consumption) is concerned, the issue has been
well and long settled; the ruling of The Al Bida is to the
effect that when the word "about" is incorporated the
upper limit of the range is to be used for the calculation. For
example, when the daily consumption is warranted to be
"about 40 m.t.", the figure of 42 m.t. will be
used for calculating the over-consumption. This benefits the Owners
as the calculation is on the basis of their minimum legal
obligation, that is to say the method least onerous to Owners and
the least beneficial to Charterers.
However, what is the position when there is underperformance in
terms of speed but there is a contractual obligation to credit the
Owners or set off any saving of bunkers under-consumed? What is the
figure the parties should use in their calculation in order to find
out, in the first place, the allowed consumption and then determine
whether there was any saving to be set off against any speed
underperformance? Using, for instance, the previous example, should
this figure be 42 (i.e. 40 +5%) or 38 (i.e. 40
–5%) metric tons? In The Gaz Energy No.2 the
Disponent Owners argued that the proper figure should be 42 metric
tons. This would apply the same test as for over-consumption as
referred to above. The situation was made more complex due to the
fact there was an arbitration decision where, in similar
circumstances, the LMAA Tribunal (London Arbitration 20/07) had
used the contractual consumption holding that the proper figure
should be 40 metric tons.
However, the Admiralty Judge, Mr. Justice Teare, ruled that for
the purposes of crediting any bunker under-consumption (saving) to
set off against an underperformance claim, the figure to be used in
the relevant calculation for consumption of bunkers should be the
lower of the two figures within the "about" tolerance (in
this case 38 m. tons) but for the purposes of calculating
over-consumption the higher of the two figures within the
"about" tolerance should be used (in this case 42 m.
tons). This clarifies the legal position and, essentially,
"overrules" the above arbitration decision. The decision
meant that there was no bunker saving, so the Owners were not
entitled to any credit and should pay in full the underperformance
claim of the Charterers.
Paragraph 18 of the Judgment appears to be of particular
importance and contains the relevant maxim. The Judge said that
"[w]here the guaranteed maximum consumption is expressed
by reference to a range ("about 40 mt" per day) it seems
to me to be right in principle to assess underperformance by
reference to the upper limit of that range, 42 mt per day, and to
assess overperformance by reference to the lower limit of that
range, 38 mt per day". This dictum is of a general
application, not restricted to the factual context of the
particular case, and establishes a legal precedent on a practical
time charter issue that was previously missing from the relevant
case law.
Overall, the above decision is a pro-Charterer decision. Looking
ahead, caution should be given when vessels are chartered on a
back-to-back basis. However, from a Charterer's perspective,
where the "about [X]" consumption is quoted by Owners for
chartered in tonnage but this is changed to "maximum
[X+5%]" consumption for the same tonnage when chartered
out, the Charterer may claim as Owner down the charter line a
credit from bunkers saved on the basis of the
"maximum" provision but will not be obliged to
pass such benefit to the Head Owner up the line of the charters, if
this was still within the "about" range.
This decision displaces the decision of London Arbitration
20/07.
Footnote
1 Reed Smith acted for the Disponent Owners in this
case.
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