Time Charters. Off-hire due to the seizure by pirates. Last updated 12-Aug-2014

The absence of any national administration means that any attempt to intervene by diplomatic means is fraught with difficulty. Equally any concept of military intervention involves legal and technical difficulties, leaving aside the risk to captured crews.
Masefield AG v Amlin Corporate Member Ltd [2010] EWHC 280 (Comm), per Steel J, at para 13.

Detention/seizure by pirates

Provoked by political chaos in Somalia, an unprecedented surge of hi-jacking cases, first over the Gulf of Aden and later over both western and central parts of Indian Ocean, brought to shipping community incredibly difficult problem of protection of ocean trade routes. Since August 2008, naval ships from Combined Task Force 150, Russia, China and India are trying to take control over the situation on the high seas around Somalia and in Indian Ocean. And if these combined efforts by the end of 2013 gave definite successful results in the Indian Ocean, similar problem in West African waters.

It is, therefore, commonly understood that presently, payment of a ransom is the only realistic and effective manner of obtaining the release of a vessel and crew as Steel J inferred in Masefield AG v Amlin Corporate Member Ltd [2010] EWHC 280 (Comm).

Apart of human problem of releasing crews from lengthy captivity there are many complex financial issues related to ship and cargo being out of owners’ hold for significant time. In above mentioned case Masefield AG v Amlin Corporate Member Ltd [2010] EWHC 280 (Comm) the High Court considered a question whether by the capture of the vessel by the pirates and its removal into Somali waters the cargo became an actual total loss in terms of s57(1) of the Marine Insurance Act 1906 (read more about this decision here). Later this dispute came to the Court of Appeal ([2011] EWCA Civ 24) where it was held that payment of ransom in factual background of that case deprived the insured from claiming ATL (Actual Total Loss). Read more about this decision here.

In another recent case Cosco Bulk Carrier Co Ltd & Anor v M/V Saldanha C/P dated 25/06/08 [2010] EWHC 1340 (Comm) the Charterers’ claim raised a question whether, under NYPE form of charter, the hire is due for that time when the vessel was in pirates hands and out of Charterers’ service.

Cl. 15 of charterparty on amended NYPE form has the following wording:

That in the event of the loss of time from default and/or deficiency of men including strike of Officers and/or crew or deficiency of… stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, dry-docking for the purpose of examination or painting bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost…

The Charterers’ case was that seizure and detention of the vessel by pirates falls within one or more of the following three causes contained in cl. 15 of the charterparty:

i) Detention by average accidents to ship or cargo;

ii) Default and/or deficiency of men;

iii) Any other cause.

The judge commenced his judgment with restatement of basic principles of payment of hire under a time charterparty, saying that the hire is payable continuously unless charterers can bring themselves within any exceptions mentioned in charterparty, the onus being on charterers to do so. Doubt as to the meaning of exceptions is to be resolved in favour of owners. Unless within the ambit of the exceptions, the risk of delay is borne by charterers.

The learned judge refused Charterers’ claim on all three issues. His ruling can shortly be summarized as follows:

i) Wording ‘average accidents’ has a meaning of ‘an accident which causes damage’ and no damage was caused to the vessel, moreover the judge supported the tribunal’s view that seizure by pirates is not an accident because the later requires lack of intent by all protagonists. A deliberate and violent attack can not be described as an accident, no matter how unexpected it may have been to the victim.

ii) Under ‘default and/or deficiency of men’ head the charterers claimed that the master and crew had failed to take recognised anti-piracy precautions, before and during the attack. The judge held that historically ‘deficiency of men’ has a meaning of ‘numerical insufficiency’ which brings the vessel off-hire since an adequate complement of officers and crew for working the ship was not available. Whereas default of the officers and crew focussed on a refusal to perform duties. Furthermore it was held that to give to the words ‘default of men’ a wide meaning proposed by the charterers would result in a startling alteration in the bargain typically struck in time charterparties as to the risk of delay.

iii) ‘Any other cause’ in the absence of ‘whatsoever’, was held to be of limited scope as judgment of Rix J in The Laconian Confidence [1997] 1 Lloyd’s Rep. 139, shown at pp. 150, 151 and falls short of incorporation such ‘classic example’ of a totally extraneous cause as seizure by pirates.

iv) Should parties be minded to treat seizures by pirates as an off-hire event under a time charterparty, they can do so straightforwardly and most obviously by way of an express provision in a ‘seizures’ or ‘detention’ clause. These propositions define that generally the risk of detention by pirates will be born by the charterers unless charterparty expressly provides otherwise or wording ‘any other cause’ (see similar wording in Shelltime4 and BPtime3) is amended with the word ‘whatsoever’

It’s also notable that it looks that any pirate attack whether successful or not, causing damage to the vessel or not, cannot be properly called as ‘accident’ being deliberately planned by pirates, although unexpected by ship’s crew.

Recent BIMCO ‘piracy’ clause adopts similar approach that would put the risk of time lost due to pirate attacks on charterers. But market analysis shows that the BIMCO clause has not been widely used, mainly because stronger bargaining power enjoyed by the Charterers’ now gives them upper hand in demanding express exemptions for time lost due to pirate seizures.

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