Bunker price disputes can arise on various issues, especially at times where there is bunker market price volatility or low profit margins. The aim of this article is to consider some of these issues and discuss recent arbitration decisions which provide guidance.
Under most time charterparties, the supply of bunkers is normally the responsibility of Charterers. Bunkers usually become Charterers’ property upon delivery of the vessel until they are purchased back by Owners on redelivery.
Owners are under a general duty to assist in providing Charterers with information to enable Charterers to stem appropriate bunker quantities so that the vessel is redelivered with the contractually agreed quantities onboard. Generally, Charterers are not permitted to order additional bunkers not required for the chartered service for their own commercial purposes, for example for the purpose of making a trading profit on redelivery where the market price is less than the stipulate contract price.
“About” Margin for Redelivered Bunker Quantity
Charterparties specify the quantity of the bunkers on redelivery which is usually preceded by the term “about”. As a rule of thumb, the term “about” makes an allowance of five per cent from the set quantity given the difficulty in determining precisely the bunker quantity needed before redelivery, unless the parties agreed otherwise or a different margin is justified by the particular facts of a case.
In London Arbitration 13/03 the tribunal considered the applicable margin where a charterparty required Charterers to redeliver the vessel with “about” the same quantities of bunkers as on delivery. The tribunal found that Charterers were not in breach if they were within a five per cent margin of the delivery quantity, commenting that it is not always possible to precisely obtain the quantity of bunkers which are required, hence, a margin is an obvious commercial precaution to avoid Charterers finding themselves in breach.
Interestingly, in London Arbitration 15/13, the tribunal decided, based on the particular facts of the case, that it was appropriate to depart from the five per cent margin and applied a two percent margin only. Owners had advised 12 days before redelivery that the vessel would need at least 133mt of IFO. Despite this, Charterers stemmed only 95mt at the last discharge port prior to redelivery. Based on the evidence, there was no genuine difficulty in ascertaining in advance the redelivery bunkers quantity needed as the Master provided the necessary information. The tribunal felt that strict adherence to the five per cent rule would lead to the unacceptable scenario where Charterers can try to save costs by redelivering with the five per cent shortfall, hence, they applied a two per cent shortfall.
Applicable Bunker Price for Excess ( or Shortage ) Redelivery Bunkers
The general position under English law is that unless it is otherwise provided for in the charterparty, the price of bunkers on redelivery will be the market price at the place or area of redelivery, without regard to the price actually paid by Charterers for the bunkers1.
Many charterparties often provide a contractual price for the bunkers. Disputes commonly arise as to the applicable bunker price, where the vessel is not redelivered with about the same bunker quantities onboard as on delivery.
In circumstances where the vessel is redelivered either with excess or a shortage of bunkers, the starting position is that Charterers are technically in breach of their contractual obligation to redeliver the vessel with the stipulated quantities, which entitles Owners to claim for damages. Such damages aim to put the party in the position he would have been had it not been for the breach.
The contractual price for the bunkers will only apply to the excess quantity of bunkers which falls within the ‘about’ allowance, which as discussed above is normally five per cent. However, for any bunkers which are in excess of or short of the contractually agreed quantities (after taking into account the ‘about’ provisions), the position is that the applicable bunker price ought to be the price at the redelivery port or redelivery area at the time the vessel was redelivered and not the contract price or price actually paid for the bunkers by Charterers, regardless of whether Owners opted to take on bunkers at such port2
In the recent London Arbitration 3/23 the tribunal had to consider which price to apply for the excess bunkers the vessel was redelivered with. The tribunal attempted to find a principled approach which could apply to any situation where there was a failure by charterers in respect of the quantity of redelivery bunkers, whether it was excess or a shortage of bunkers beyond the five per cent allowance. It was decided that the bunker price at the redelivery area would apply and not the bunker price agreed in the charter or those actually paid by the party who stemmed the bunkers.
It is worth mentioning that in London Arbitration 3/23 Charterers argued that the master had substantially over-estimated the quantity of bunkers required for the voyage and that this amounted to a breach of charter. Owners’ position was that the master’s calculations were in order particularly as he included a safety margin of 140mt IFO to allow for port delays. The tribunal found there was no breach by the master and the safety margin applied was not unreasonable.
Comments
As highlighted in this article, different issues may arise with respect to bunker quantities on redelivery. Ultimately the outcome of any such disputes will depend on the specific facts and wording of the relevant charterparty clauses. It is important for parties to ensure that the charter terms reflect the parties’ intentions.
The incorporation of a provision in the charterparty as to the agreed bunker prices on redelivery will normally only apply to bunkers within the allowable agreed quantity.
Members may wish to consider including express charterparty provisions addressing the price to be paid for bunkers in excess or short of the agreed redelivery quantities.
1See The Good Helmsman [1981] 1 Lloyd’s Rep. 377. where Ackner, L.J., said that if there is no express term stipulating the price payable, then “the market price prevailing at the port when and where the vessel is delivered or… redelivered… will be implied”, since “the charterers on delivery and the owners on redelivery take over for their own use property which they would usually otherwise have to buy on the open market”.
2London Arbitration 17/19
