Speed and Performance, Pitfalls and Practice

June 2018

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Spped and performance

It is common for an element of speed and performance claims to be included in final hire disputes at the end of a time charterparty. Arbitration 9/18 raises a number of important legal and commercial issues to consider when raising or defending speed and consumption claims.

The subject vessel was chartered on an amended NYPE form, being delivered on 1 March 2005 and redelivered on 25 December 2005. Charterers made significant deductions from hire of US$729,158.76, of which some US$450,000 related to alleged under-performance in speed and over-consumption of bunkers, such claims being described in Charterers’ final hire statement as “off-hire due to under performance of speed…”.

In September 2006 Owners started arbitration claiming for a balance of account and claim submissions were served in April 2012.

The Charter

The Charter contained the following provisions:

CLAUSE 15:

“…if upon the voyage the speed be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost and the cost of any extra fuel consumed in consequence thereof, and all extra expenses shall be deducted from the hire. Same always to be properly documented by proper evidence...”

CLAUSE 29:

“…
b) speed/consumption clause 

laden speed: about 13.0 knots

laden daily consumption: about 32.0 m/t ifo + about 2.0 m/ts mdo…

Throughout the currency of this charterparty, owners guarantee vessel shall be capable of maintaining and shall maintain on all sea passages from sea buoy to sea buoy an average speed as given hereabove. The time during which there is bad weather/heavy swell or adverse current with wind exceeding Beaufort Force 4 and/or Douglas Sea State 3 will not be taken into consideration for the calculation of performance.

c) charterers shall have the option of supplying ocean routes advice to the master during the voyage. The master shall comply with the reporting procedures of the routing services. Evidence of weather reports to be taken from ship’s deck log and independent weather bureau reports.

In the event of consistent discrepancy between the deck logs and the independent weather bureau reports, then the independent weather bureau reports to be taken as ruling.

In the event of a persistent dispute over a weather report and should owners decide to proceed to arbitration, charterers will agree that owners appoint a second independent weather bureau who will provide further evidence, and the arbitrators will ultimately decide which reports will be utilised.”

CLAUSE 37:

“…Deductions from hire:

Charterers have the right to deduct from charter hire during the period of this charter any proven off hire time and/or deductions in conformity with clause 64.
…”

CLAUSE 64:

“Without prejudice to charterers’ other rights under this charter, it is expressly agreed that the charterers have the liberty to deduct from hire any damages or direct related losses suffered by charterers…for reason of the owners/disponent owners/vessel not complying with any warranty/condition given in this charter (including any addendum) or any other charter between owners, owners’ group companies, managers and charterers…”

Owners argued that Charterers’ deductions had been advanced on a wrongful basis.

Arguments in the Arbitration

Time Bar

The final hire statement as submitted by Charterers had referred only to deductions under the off-hire provisions of the charter. The deductions were not specifically advanced as being in respect of any breach of the speed performance warranty pursuant to clause 64.  It was further argued that the only other relevant provision of the charter which could allow deductions on the basis of off-hire was set out in clause 15, whereas on the facts clause 15 had not been invoked.

The Tribunal agreed that clauses 37 and 64 (which deal with deductions from hire) distinguished between a claim for off-hire and deductions in respect of damages. By the reference to the final hire statement, Charterers had deducted monies expressly for an off hire event. At no time, prior to their defence submissions in June 2012, had Charterers asserted a claim for breach of the performance warranties set out in clause 29 and a consequent claim for damages.  Had it been their intention to advance a claim for damages, Charterers should have identified the basis of their deductions in clear and unequivocal terms at the time the claim was raised.  

Owners argued that any claim for breach of the performance warranty was only raised in Charterers’ defence/cross-claim submissions dated 28 June 2012 with  deductions prior to this time relating solely to off-hire and that this should result in  the claims for breach of warranty being time barred pursuant to the Hague Rules, which were incorporated into the charter. 

As an alternative, the Tribunal were also asked to apply the time bar under procedural law (i.e. The Limitation Act 1980) given that it was raised more than 6 years after the cause of action accrued.

The Tribunal agreed that the claim was time barred on the latter basis. However, any argument that the cross-claims had been extinguished much earlier by application of the Hague Rules was rejected on the basis that any claim in relation to the vessel’s performance was not sufficiently cargo-related for the Hague Rules to be relevant.

Substantive Arguments

Although the decision on time bars resolved the matter, the Tribunal went on to consider the substantive issues in dispute. In terms of the wrongful calculation of the vessel’s performance Owners argued that the speed guarantee contained in clause 29B of the charter warranted an average speed across “all sea passages” during the “entire period of the charter”. It was not, as Charterers contended, an average speed “per voyage” from sea buoy to sea buoy. In their view Charterers would be interested in the overall performance of the vessel, and it was intended that Charterers give credit for any over-performance during the whole service.  However, the Tribunal disagreed.  Apart from how much hire is payable, a period time charterer is also interested in observing individual voyage schedules. On this basis it made commercial sense for Owners to be guaranteeing average speed on “each voyage”. If Owners had intended anything else, unequivocal words should have been inserted into the charter to clarify the basis for assessing performance and to expressly set out their intentions.

In terms of  interpretation of clause 29B, Owners argued that the words ‘Beaufort Force 4 and/or Douglas Sea State 3’ were intended to define ‘bad weather’, and were not intended to only apply during times of  ‘adverse current’ .   The Tribunal agreed and interpreted this clause by reference to what a reasonable person having all the background knowledge available in the circumstances would have understood it to mean. In their view it was inconceivable that ‘bad weather’ would be left undefined and that Beaufort Force 4 and Douglas Sea State 3 would only apply to ‘adverse current’.

The Tribunal also agreed with Owners’ contention that on the construction of clause 29C deck log books were one of the ‘evidential reports’ that the Tribunal should consider in determining the weather conditions. 

Owners argued that on the construction of clause 29B it was quite clear that the ‘continuing’ warranty related only to the speed of the vessel, and not her consumption. On this basis the vessel’s performance based on consumption of fuel can only be assessed in good weather and sea conditions, either before or at the date of the charter (or at time of delivery into service). The Tribunal agreed with this approach, although their preference was to assess the consumption warranty on or before the date of delivery, given that there could be long intervals between the date of the charter and her delivery into service.

Comment

This decision illustrates the importance of identifying, with some degree of precision, and if possible by reference to the relevant contractual provision, the basis on which deduction is being made. It will not be enough to simply submit a final hire statement without any explanation as to the basis of such deductions. Otherwise charterers run the risk of falling foul of contractual and/or procedural time bar provisions.  The case also serves as useful reminder to charterers of the potential for a one year Hague Rules time bar to apply to deductions that are related to cargo.

This decision also highlights that clauses containing warranties for speed and performance should be carefully drafted to have the intended effect so as to avoid any doubt as to the parties’ respective intentions and to reduce the potential for legal disputes.

 

Article by Jasmin Sandhu

Syndicate Executive

Eastern Syndicate