Bunkers - Fitness For Purpose

July 2003

The High Court has recently declined charterers permission to appeal an Interim Final Arbitration Award in relation to the applicability of the implied term as to fitness for purpose to the supply of bunkers.

Under both English statute and common law, the implied term as to fitness for purpose is applicable to all contracts for the sale of goods and supply of goods and services. Prior to the recent Arbitration Award, the applicability of the implied term to the supply of bunkers was not widely appreciated. Providing bunker suppliers and charterers supplied goods which conformed to the specification laid down in the bunker supply contract and/or the relevant charter (respectively), bunker suppliers and charterers felt secure that they had complied with their contractual obligations on quality.

In the particular case in point, charterers had supplied bunkers which were technically on spec, although the fuel analysis agency (DNVPS) had advised proper centrifuging owing to a high catalytic fine content. Owners allege that owing to the poor ignition quality of the fuel supplied and the unsuitability of that fuel for a medium speed diesel engine, main engine failure occurred and significant consequential loss resulted. On the hearing of the preliminary issue, owners' claimed the applicability of the implied term as to fitness for purpose to the supply of bunkers, an argument which was resoundingly upheld by the tribunal and High Court.

From a practical point of view, in circumstances in which English law applies under the governing contract (be it bunker supply contract and/or charterparty), bunker suppliers and charterers will now have to ensure that bunkers supplied are not only within the contractual specification but are also fit for the particular engine on board the particular vessel supplied. This will require all parties involved in the bunker supply chain to make a detailed enquiry of the particular vessel's engine, its standard characteristics and its vulnerability to certain qualities of the bunkers supplied, notwithstanding that such bunkers are on spec. Such parties will also have to ensure that the fuel analysis agencies perform a much wider and comprehensive analysis which, at the very least, should include ignition quality as one of the parameters tested. Charterers should also ensure that particular vessels' details and engine details are passed on to the physical supplier in order to be in a position to seek an indemnity down the line against bunker suppliers in the event that the bunkers supplied are found to be unfit for the purpose intended. If the charterparty and bunker supply contracts are not subject to the same law and jurisdiction (which is commonly the case), charterers could find it extremely difficult claiming an indemnity down the contractual chain.

From owners' point of view it is equally important that an accurate description of the vessel's engine is contained within the vessel's description in any charterparty.

The decision reconfirms establish principles of English statute and common law and will inevitably lead to an increase in the number of claims of this nature.

 

With thanks to Mark O'Neil of Stephenson Harwood* for preparing this article.

*Stephenson Harwood are instructed by owners.