Time Charters. Off-hire. Seizure & Capture Last updated 27-Dec-2016

… "this type of risk" was one that the Owners agreed to accept at the time the Charterparty was made. That is, essentially, a finding of mixed fact and law.
Action Navigation v Bottiglieri Navigation Inc [2005] All ER (D) 229 (Feb), Aikens J, at para.25.

"Damage", "defect" or "ordinary wear and tear".

Accumulation of marine growth (barnacles or molluscs) on ship’s hull in warm waters is often a cause of significant reduction in ship’s speed and impairment of vessel’s performance. Such accumulation produces particularly negative effect on speed and fuel consumption characteristics after prolonged idle periods (more than 2 weeks) at anchor in tropical water. As a result, this natural phenomenon brings up the following issues:

i) loss of speed and increase of time during loaded and ballast passages;
ii) increase of fuel consumption to compensate speed underperformance;
iii) expenses and delays associated with necessity of hull cleaning.

The issues above affect owner’s obligation to keep the vessel in a thoroughly efficient state in hull, machinery and equipment for and during the service and his warranty as to speed and fuel consumption. They can also trigger off-hire provisions which allocate the risks for delays related to vessel’s inefficiency during the hull cleaning operation.

Speed warranty claim is based on a breach y the owner of a term as to the description of the vessel, but damages for delays resulted from that breach can fall under protection of general exception clause, such for example as cl.13 of Baltime 1939, "The Owners only to be responsible for delay … during the currency of the Charter if such delay or loss or damage has been caused by want of due diligence on the part of the Owners", as Mocatta J held in Cosmos Bulk Transport Inc v China National Foreign Trade Transportation Corporation [1978] 1 All ER 322 at p.337. On the peculiar facts of that case the judge held that accumulation of marine growth falls within scope of ‘damage to hull or other accident’ wording in off-hire clause.

… the encrustation of the vessel’s bottom by a thick coat of molluscs (or barnacles) during her lengthy stay at Whampoa was unexpected, since the water there was fresh or slightly brackish, whilst molluscs prefer salt water. Clearly, what happened to the ship’s bottom at Whampoa was not only unexpected, but out of the ordinary course of things. Bearing in mind the wide meaning, which on the authorities one is entitled to give in their context to the words ‘or other accident’, I find no difficulty in holding that the words covered the peculiar circumstance of the fouling of the ship’s bottom at Whampoa.

Unexpected growth of molluscs in fresh water gave to this event necessary characteristic of fortuity to qualify for to the general purpose of the off-hire clause, as contrasted with the natural result of the ship complying with the charterers' orders. In Santa Martha Baay Scheepvaart & Handelsmaatschappij N.V. v Scanbulk A/S (The "Rijn") [1981] 2 Lloyd’s Rep. 267 it was held that speed reduction due to hull fouling happened during 3 months of inactivity at the loading port, was the natural result of the ship complying with the charterers' legitimate orders and was not a "defect in hull" within meaning of cl 15 of NYPE 46 time charterparty form. As a result neither the time spent for hull-cleaning, nor any subsequent loss in time during the voyage from loading port Lourenco Marques to Baltimore fell within the scope of the off-hire provision.

But in the great majority of cases, the accretion of growth is simply a natural consequence of the ship remaining in service, with nothing fortuitous about it. In the present case, furthermore, it is a fair inference from the findings in the award that the excessive growth stemmed from the abnormally long period which the vessel spent at Lourenco Marques awaiting cargo. It was the Charterers’ own choice to keep her at rest in tropical waters for nearly three months, and it would be unjust if they could seek financial relief for the natural consequences of the delay.
Per Mustill, J in Santa Martha Baay Scheepvaart & Handelsmaatschappij N.V. v Scanbulk A/S (The Rijn)[1981] 2 Lloyd’s Rep. 267 at p.272

However, basic risk to the integrity of the vessel is upon shipowner, subject only to any express limitation in time charter. In Bulfracht (Cyprus) Ltd. v Boneset Shipping Company Ltd. (The Pamphilos) [2002] EWHC 2292 extensive presentation of technical details on protection against marine growth provided by application of anti-fouling paints and their operation to protect the hull was examined by Colman J.

The owners claimed the balance of hire and interest on it due under a trip time charter deducted by the charterers from the hire under allegation that the vessel had underperformed by reason of her slow speed and excessive fuel oil consumption. They also claimed as damages the cost of cleaning the vessel’s hull and the time lost in so doing on the basis that the charterers had failed in accordance with clause 4 to re-deliver the vessel in "like good order and condition" as when she was delivered to them.

Vessel indeed underperformed and over consumed the bunker but the owners contended that while the vessel was at anchor off Sepetiba for 21 days her hull had become heavily fouled with marine growth and this had the effect of reducing her speed and increasing her consumption of fuel. Clearly, the owners were trying to bring themselves within the scope of decision in The Rijn case, discussed above, arguing that the vessel’s failure to comply with the speed and consumption warranty was caused solely by her compliance with the charterers' instructions to lie at anchor and accordingly the charterers were not entitled to make any deduction from the hire.

The court dismissed appeal and found no serious irregularity in the Tribunal decision. Arbitrators, by majority, allowed owners’ claim, considering as sufficient the evidence provided by the owners: application of antifouling paint at the dry dock, the fact that the vessel did not have a record of underperformance during the period of trading between dry-docking and her delivery at Sepetiba under the time charter, evidence as to fact that vessel’s performance "improved dramatically" after underwater cleaning afloat following re-delivery under the time charter and the samples of the barnacles obtained in the course of underwater inspection and subsequent cleaning. On the other hands the charterers were held to be not in breach of their obligation to redeliver the vessel in like good order and condition because the fouling of the hull. Because while the contract scheme can provide that charterers bore the cost of underperformance caused by their orders, but where the vessel condition on her re-delivery affected by accumulation of barnacles on ship’s hull it falls within ordinary incidents of trading in accordance with Charterers’ lawful orders for which the owners bore the cost.

Following same logic that such type of risk foreseeable and foreseen by both parties at the time the Charterparty was concluded was one that the Owners agreed to accept, the court in Action Navigation v Bottiglieri Navigation Inc (The Kitsa)[2005] All ER (D) 229 rejected owners’ claim that they entitled to be indemnified under an "implied indemnity" in the charterparty for the consequences of obeying the lawful order of the charterers requesting the vessel go to the port where she stayed inactive for prolonged time and considerable amount of marine growth accumulated on the ship’s hull to such extent that subsequent hull cleaning have become required. Aikens J, moreover, concluded that the expenses of hull cleaning were ordinary expenses of trading under charterparty in question and that the parties (at the time the charterparty was made) would have so regarded this type of expense.

The judge also rejected the owners’ claim under the second head that the charterers had wrongfully put the vessel off-hire for the period whilst the de-fouling work was being done at Portland on the basis of arbitrators finding that this call was for "Owners' purposes" in order that they might comply with their obligation to maintain.

To avoid collision with decision of Mustill J in The Rijn [1981] 2 Lloyd’s Rep. 267, Aikens J held that the arbitrators referred to clause 54 (Deviation/Put back) and not to cl. 15 (Off-hire) of NYPE in their ruling on whether the vessel was off-hire during hull cleaning. He commented decision of Mustill J and arbitrators ruling in the following words:

43. Thirdly, if the arbitrators had intended to refer to clause 15 then their ruling would have been contrary to the decision of Mustill J (as he then was) in Santa Martha Baay Scheepvaart and Handelsmaatschappij NV v Scanbulk A/S (The Rijn) [1981] 2 Lloyd’s Rep 267 at pp.271-2. In that case Mustill J had to deal with an argument (raised on an appeal from arbitrators by way of Special Case), that the charterers could rely on clause 15 of the NYPE form to reduce the hire payable because the vessel lost time as a result of hull fouling caused by marine growth. Mustill J concluded that the arbitrators had found that the charterers had ordered the vessel to Lorenco Marques where she had been delayed for three months; the marine growth was the natural consequence of the vessel remaining in service; and that the claim to put the vessel off - hire related to the time spent in hull - cleaning at Capetown and time lost on the subsequent voyage from Capetown to Baltimore. Mustill J held that,
(i) in the absence of a finding to the contrary, the hull fouling by marine growth was not fortuitous;
(ii) on the true construction of clause 15, non - fortuitous marine growth did not fall within the phrase in the first half of clause 15, that is "...any other cause preventing the full working of the vessel";
(iii) non - fortuitous marine growth was not a "defect in hull", and so did not fall within the wording of the second half of clause 15; therefore (iv) neither the time spent hull - cleaning at Capetown, nor any subsequent loss in time during the voyage to Baltimore (because of a reduction in speed) fell within the wording of clause 15.

44. If the arbitrators had intended to hold in this case that the vessel was off - hire under the terms of clause 15 of the Charterparty, they would have had to distinguish Mustill J’s decision in The Rijn. Two of the arbitrators are very experienced shipping lawyers. I am sure that they would have been aware of Mustill J’s decision and would not simply have ignored it. Therefore I conclude that the arbitrators were not focusing on clause 15 at all, but decided the off - hire issue on the basis of clause 54.

The charterers were equally successful in Imperator I Maritime Company v Bunge SA (The Anny Petrakis) [2016] EWHC 1506 (Comm) in claiming damages for breach of the continuing speed warranty contained in clause 29(b) of the NYPE 46, when such underperformance resulted from accumulation of marine growth during 27 days of anchorage in tropical waters. The question before the court was:

Where under a time charter the owner warrants to the time charterer that the vessel shall maintain a particular level of performance throughout the charter period, and the time charterer alleges underperformance in breach of that warranty, is it a defence for the owner to prove that the underperformance resulted from compliance with the time charterer's orders?

The Arbitrators found that that the vessel did not maintain the warranted speed, and that the cause of the Vessel's reduced speed was underwater fouling of the vessel's hull and propeller by marine growth which developed during the vessel's lengthy stay in tropical waters. But contrary to the owners’ claim they concluded that the marine growth could not be regarded as unusual or unexpected, but constituted fair wear and tear incurred in the ordinary course of trading.

In the High Court the owners heavily relied on the principle of law stated in Time Charters 7th Ed. (2014) paragraph 3.75:

Where the owners give a continuing undertaking as to performance of the ship, and the ship has in fact underperformed, it is a defence for the owners to prove that the underperformance resulted from their compliance with the charterers' orders: see The Pamphilos [2002] 2 Lloyd's Rep 681 per Colman J., at page 690. In that case, the ship's failure to achieve the promised performance resulted from marine fouling, which was in turn the result of the owners' complying with the charterers' order to wait for 21 days at a tropical port.

The judge however disagreed with the owners. Recognising decision of Colman J in The Pamphilos [2002] 2 Lloyd's Rep 681 he distinguished that case on facts saying that ‘the terms of the speed warranty in that case are not set out in the report and it does not appear that the cases on the application of the implied indemnity were cited.’ He held that the risk of marine growth, which was neither unusual nor unexpected, was one accepted by the owners.

In support to his stance on the matter the learned judge cited Lord Sumption’s obiter in ENE Kos 1 Ltd v Petroleo Brasileiro SA (No 2) [2012] 2 AC 164, where his Lordship expressly recognised that the indemnity did not apply to marine fouling occurring in the course of contractual trading. The judge concluded:

28. it is difficult to see why the warranty should be read as not applying where performance is affected as a consequence of such an assumed risk. The Owners have given the continuing warranty at the same time as assuming that risk, without excluding it from the warranty, so the warranty must be taken to apply with full force.

… 31. For the above reasons, I consider that the proposition stated in paragraph 3.75 of Time Charters is too widely stated. Where a vessel has underperformed, it is not a defence to a claim on a continuing performance warranty for the owners to prove that the underperformance resulted from compliance with the time charterers' orders unless the underperformance was caused by a risk which the owners had not contractually assumed and in respect of which they are entitled to be indemnified by the charterers.

Consecutive charter warranty

In London Arbitration 18/14 case the charterers deducted from hire sums due, in their opinion, for underperformance and overconsumption. The vessel in question was the subject of two consecutive time charters on the NYPE 46 form for one time charter trip under each, with the second charter being in direct continuation of the first. Clause 128(1) of each charter provided:

"Owners not to be responsible if the vessel under the currency of this charter party stays at port or anchorage or any other place for more than 28 days and therefore vessel’s speed, due to bottom fouling which may have formed to the ship’s hull as a direct result of such prolonged stay, is reduced and/or consumption increased. In case of need for underwater cleaning same to be for Charterer’s account in terms of time and expenses."

Under the first charter vessel was at the loadport with the high temperature of the sea water, where the vessel had stayed for 48 days. Underwater inspection at the discharge port confirmed accumulation of marine growth and owners informed charterers that as per cl.128 the charterers are responsible for hull fouling, but no cleaning took place.

Next timecharter incorporated identical speed and consumption warranties, and vessel was delivered to timecharterers directly on their redelivery her from the first charter.

Consequently charterers made deductions under both charters for under-performance and overconsumption.

The owners were able to counter-claim a balance of hire under the first time charter but were held liable under the second. Tribunal rejected the owners’ argument that charterers were estopped by their actions from claiming underperformance in respect of the second voyage because they had taken the vessel in direct continuation of the first charter, and thereby did not allow the hull from marine growth accumulated during the first timecharter.

In the Tribunal’s view before conclusion of second charter owners were well aware of the probability of overconsumption and underperformance due to hull fouling, basis on underwater inspection and their letter to the charterers to this effect. Nevertheless owners fixed the vessel on identical terms, thus giving warranties for which they undertook to pay damages for any proven breach. There was no estoppel in charterers’ conduct, because they just agreed on the terms of fixture acceptable to them and took delivery of the vessel.

Conclusions

How then to define the extent of physical effect of accumulation of marine growth on ship’s hull? The authorities upon the point are difficult to reconcile. In Cosmos Bulk Transport Inc v China National Foreign Trade Transportation Corporation [1978] 1 All ER 322 on "somewhat strange findings of fact in [the] case" it was held to be "damage", whereas Mustill J was not able to visualize it as a "defect" in The Rijn case. Finally, Staughton J in The Ioanna [1985] 2 Lloyd’s Rep. 164, held that where a ship’s speed had been reduced during the charter service, due to the ship’s bottom having been fouled prior to delivery, the fouling did constitute a “defect” within the meaning of NYPE cl.15. It can be suggested therefore that in each given case this issue will be decided on its own facts.

In some cases, perhaps, it would be proper to conclude, that the length of period of inactivity can be seen as a decisive factor in the matter allocation of risk for delays related to hull fouling is at issue. The test proposed in The Kitsa asks whether such period is longer than that which is usual for said type of vessel trading at this particular port. If period of inactivity is considerably (unexpectedly) longer and outside of reasonable expectations of both parties when contract was concluded, then this risk of hull fouling is fortuitous, otherwise it may be said that "this type of risk" was one foreseeable and foreseen by both parties at the time the charterparty was concluded and one that the owners agreed to accept at the time the charterparty was made.

But foreseeability test is now extended or clarified in both Imperator I Maritime Company v Bunge SA (The Anny Petrakis) [2016] EWHC 1506 (Comm) and ENE Kos 1 Ltd v Petroleo Brasileiro SA (No 2) [2012] 2 AC 164 to mean that, any such claim will be looked at from the point of view whether risk of hull fouling was accepted by the owners at the time of charterparty conclusion. See also BIMCO clause below.

Hull cleaning should to be carried out by the owners in compliance with their obligation to keep the vessel in a thoroughly efficient state throughout her service. If such fouling has been suffered during relatively short period of time and falls short of fortuity test then the charterers are permitted to deduct from hire time spent by the owners for deviation to clean the hull but not permitted to make deductions from hire due to underperformance arising from fouling. As Bulfracht (Cyprus) Ltd. v Boneset Shipping Company Ltd. (The "Pamphilos") [2002] EWHC 2292 shows the owners had to establish at least a prima facie case that the barnacles had grown during the charter service and that their growth fell outside “ordinary wear and tear” exception.

In October 2012 BIMCO introduced new clause which apportions liability for hull fouling. In an introductory article BIMCO provided the following information:

To strike a balance between owners’ usual maintenance obligations under a time charter and the situation where a prolonged stay is ordered by charterers, the Clause only takes effect after an agreed period of idling has lapsed. This "trigger" is set at 15 days if the vessel is in tropical waters and 25 days if in non-tropical waters (although the parties can agree an alternative number of days if they wish). The 15 days in tropical waters is consistent with warranty periods for marine coatings commonly given by paint manufacturers.

Once the Clause is triggered, relevant performance warranties become suspended and the need for inspection and cleaning is assessed accordingly. Often partial cleaning will suffice, for instance cleaning of the vessel’s propeller and/or sea chests, and this practice has been reflected in the provisions. Furthermore, the Clause sets out clear guidelines with regards to the cleaning operations, and should it be the case that suitable cleaning facilities are not available where the vessel has been sitting, cleaning can easily be postponed till the next convenient port.

Since re-delivery of a fouled vessel could cause problems for the owners in relation to future employments, necessary cleaning is required to be carried out before redelivery. However, cleaning may not be allowed in certain areas due to local restrictions and environmental concerns, and deviating to a different area where cleaning would be offered is not always an option. The Clause takes this situation into account by placing an obligation on the parties to agree to a lump sum figure to cover cleaning and all related costs, if cleaning before redelivery has not been feasible.

BIMCO Hull Fouling Clause for Time Charter Parties

(a) If, in accordance with Charterers’ orders, the Vessel remains at or shifts within a place, anchorage and/or berth for an aggregated period exceeding:

(i) a period as the parties may agree in writing in a Tropical Zone or Seasonal Tropical Zone*; or

(ii) a period as the parties may agree in writing outside such Zones* any warranties concerning speed and consumption shall be suspended pending inspection of the Vessel’s underwater parts including, but not limited to, the hull, sea chests, rudder and propeller. *If no such periods are agreed the default periods shall be 15 days.

(b) In accordance with sub-clause (a), either party may call for inspection which shall be arranged jointly by Owners and Charterers and undertaken at Charterers’ risk, cost, expense and time.

(c) If, as a result of the inspection either party calls for cleaning of any of the underwater parts, such cleaning shall be undertaken by the Charterers at their risk, cost, expense and time in consultation with the Owners.

(i) Cleaning shall always be under the supervision of the Master and, in respect of the underwater hull coating, in accordance with the paint manufacturers’ recommended guidelines on cleaning, if any. Such cleaning shall be carried out without damage to the Vessel’s underwater parts or coating.

(ii) If, at the port or place of inspection, cleaning as required under this Sub-clause (c) is not permitted or possible, or if Charterers choose to postpone cleaning, speed and consumption warranties shall remain suspended until such cleaning has been completed. (iii) If, despite the availability of suitable facilities and equipment, Owners nevertheless refuse to permit cleaning, the speed and consumption warranties shall be reinstated from the time of such refusal.

(d) Cleaning in accordance with this clause shall always be carried out prior to redelivery. If, nevertheless, Charterers are prevented from carrying out such cleaning, the parties shall, prior to but latest on redelivery, agree a lump sum payment in full and final settlement of Owners’ costs and expenses arising as a result of or in connection with the need for cleaning pursuant to this clause.

(e) If the time limits set out in Sub-clause (a) have been exceeded but the Charterers thereafter demonstrate that the Vessel’s performance remains within the limits of this Charter Party the vessel’s speed and consumption warranties will be subsequently reinstated and the charterers’ obligations in respect of inspection and/or cleaning shall no longer be applicable.

Source BIMCO

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