Follow-on time charters need careful consideration as operators might find themselves liable in the second charter for underperformance caused by the charterer’s action in the first charter
If a vessel’s hull is fouled during a charter and there is no opportunity to clean it before delivery under the follow-on charter to the same charterer, is the owner liable for the underperformance during the second charter? According to a tribunal in London Arbitration 18/14, on the facts of that case, the owners are indeed liable.
The vessel was fixed for a time charter trip on the 1946 NYPE form. Rider clause 128 stated: “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.”
The vessel’s hull became fouled with marine growth as a result of her spending 48 days waiting, loading and remaining at the port of Morowali, Indonesia during the first charter.
Towards the end of the prolonged stay, the owner advised the charterer that the hull may have been fouled, that the prolonged stay clause was activated by this and that the owner would be conducting an underwater inspection at the discharge port (Lianyungang, China). A week later, before sailing from Morowali, the parties agreed a follow-on charterparty in direct continuation, on substantially the same contractual terms.
Following discharge at Lianyungang, an underwater inspection confirmed that the hull was fouled. However, it was not cleaned. The vessel sailed in ballast to Indonesia under her follow-on charter, loaded a cargo of nickel ore and discharged it at Lianyungang.
The owner claimed reimbursement of the charterers’ deduction of (1) $21,020.10 for the lost time and IFO/MDO overconsumption during the first charter; and (2) $12,287.94 for the lost time and IFO/MDO overconsumption during the second charter. The owner also claimed $4,500 in lieu of hold cleaning on redelivery and $2,900 for stevedore damage during discharge under the second charter.
As for the underperformance during the first charter, the tribunal held that this was for the charterer’s account under clause 128. Therefore, the owner’s claim for reimbursement of the charterer’s $21,020.10 deduction succeeded.
“When fixing consecutive time charter trips with the same charterer, the parties should give thought to the terms of the follow-on charterparty, or agree the further trip as an extension of the existing charterparty. Otherwise, problems may arise”
As for the underperformance during the second charter, the tribunal held that this was for the owner’s account. It concluded that there was no basis for the owner’s argument that the charterer was stopped from claiming in respect of the underperformance on the alleged basis that the second charter was in direct continuation of the first and there was no time for the hull to be cleaned.
When the second fixture was concluded, the owner was aware that the hull may have been fouled during the prolonged stay. Yet they fixed the vessel on identical terms to the first charterparty, taking the risk that the vessel might not be able to meet the (identical) speed and consumption warranties by reason of the hull fouling. Indeed, they may even have intended to clean the hull during the ballast voyage under the second charter (but did not do so, resulting in underperformance for the remainder of that charter).
However, the charterer’s deduction for MDO overconsumption during the second charter had to be returned to the owner because the lack of a reference to MDO consumption in the charterparty performance description meant that the owner had given no MDO consumption description at all. Furthermore, the lower IFO overconsumption figure reported by the charterer’s router prevailed over its own figure, and its time loss figure had to be reduced to factor in the address commission. Finally, the owner’s claim for the $4,500 and $2,900 additional claims succeeded in full.
The owner therefore recovered $37,623.28 (80%) of its $45,386.86 total claim and was awarded its costs in full.
When fixing consecutive time charter trips with the same charterer, the parties should give thought to the terms of the follow-on charterparty, or agree the further trip as an extension of the existing charterparty. Otherwise, problems may arise.
An owner should certainly not be quick to assume that underperformance during a follow-on charter resulting from a prolonged stay during the preceding charter (for which the charterer is liable under the first charterparty) will be for the charterer’s account. On certain facts it may be, but London Arbitration 18/14 is an example of the owner being liable for such underperformance.
Evangelos Catsambas is a partner at the Piraeus office of Ince & Co. He specialises in all types of contract drafting and shipping, general contract and international trade disputes. Evangelos can be contacted on +30 210 429 2543 or firstname.lastname@example.org.