U.S. Coast Guard Security Inspections - Who Bears The Cost Of Delay?

August 2005

In an earlier website article entitled "U.S. Ports - Liability For Cost of Security Guards", three London arbitration decisions concerning losses arising from intervention by the United States Coast Guard ("USCG") were reviewed. In each of those cases, the loss in question was the expense of security guards which were imposed on the relevant vessels by the USCG. In two of the three cases, the expenses were held to be for owners' account.

In the "Doric Pride"¹, the English High Court was asked to consider whether the time lost awaiting inspection by the USCG was for owners or charterers account under a time charter for one trip, via safe anchorage(s), safe berth(s), safe ports always afloat, always within Institute Warranty Limits, from US Gulf to South Korea, duration of about 65-75 days without guarantee.

Pursuant to the time charter contract, the charterers instructed the Master to proceed to New Orleans to load a cargo of soya beans for carriage to South Korea. At the relevant time, the USCG was operating a policy at US Gulf ports to board and inspect vessels that were calling for the first time at a United States port. For the "Doric Pride", which had been built in 2001, this was her first call to a US port, and therefore she was designated as a "High Interest Vessel" by the USCG. On, and upon arrival outside the South West Passage to New Orleans on 19th February 2004, the Master was ordered to proceed to Southwest Pass NW Approach Safety Fairway and to remain there until she had been found to be satisfactory by a USCG team of inspectors. At 0920 hours on 20th February 2004 the vessel arrived at the designated location to await inspection.

At the time, It had been expected that the USCG team would board on the following day. However, due to a collision that occurred between two other vessels early on 21st February, the Southwest Pass was closed. , resulting in The river was not re-opened until 25th February 2005. In the event, the "Doric Pride" could not be inspected until 26th February, at which time she was duly passed she was allowed to proceed to the port.

The charterers sought a declaration from the High Court that the vessel was off-hire for the period the vessel awaited inspection by the USCG between 0920 hours on 20th February 2004 and 1245 hours on 26th February 2004.

Clause 85 of the charter party provided: -

"Should the vessel be captured…seized or detained or arrested by any authority or by any legal process during the currency of this charter party, the payment of hire shall be suspended until the time of her release, and any extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for owners account, unless such capture or seizure or detention or arrest is occasioned by any personal act of [sic] omission or default of the charterers or their agents or by reason of cargo carried or calling port of trading under this charter."

Charterers argued that the vessel had been "detained" within the meaning of clause 85 and that the vessel was therefore off-hire. The owners presented four arguments in defence.

First, that the USCG's order did not amount to a detention because whilst the vessel may have been prevented from proceeding on the course directed by the charterers, she was not prevented from proceeding elsewhere. Hence, the vessel was not "detained" as the vessel was free to go elsewhere. The Court rejected this argument. It was not relevant that the vessel could have sailed elsewhere: detention occurred when, as a result of some geographical or physical constraint upon the vessel's movement, she was prevented from proceeding as directed under the charter party.

Secondly, owners argued that the effective cause of the delay was not the USCG order for the vessel to remain at Southwest Pass NW Approach Safety Fairway, but the closure of the River following the collision on 21st February between two other vessels. The Court rejected this argument on the basis that clause 85 was a period off-hire provision, and it was not necessary for the Court to look beyond the fact that as long as the detention lasted, the vessel would be off-hire.

Thirdly, owners argued that even if the vessel was "detained" within the meaning of clause 85, the proviso at the end of that clause applied, because the detention was occasioned by "…calling port of trading under this charter…". In other words, the vessel calling at New Orleans, and resulting loss of time, occurred pursuant to trading orders given by charterers to owners. This argument was also rejected by the Court on the basis that the vessel proceeded to New Orleans as a consequence of a mutual agreement between owners and charterers. The risk of boarding and inspection by the USCG did not flow from charterers nomination of New Orleans as a loading port, but was a risk inherent in the voyage agreed in the contract, and this was a risk which owners were taken to have accepted by contracting on time charter terms to carry cargo from US Gulf to South Korea.

Finally, owners argued that if the vessel was off-hire as a result of the application of clause 85, then hire should be recoverable from charterers by way of an implied indemnity in owners favour against any losses or expenses incurred by them as a consequence of following charterers orders. This argument was rejected by the Court on the basis that the implied indemnity in owners' favour (as set out in the "Island Archon" ²), was not available to an owner where the allocation of a particular risk had clearly been provided for in the charter party. In the context of the subject charter, the risk of being stopped for inspection at a US Gulf port was an ordinary trading risk for an owner agreeing to call at a port within the US Gulf.

The declaration sought by charterers was accordingly granted, so that the vessel was off-hire between 20th and 26th February 2004.

Click here to view report on Court of Appeal Decision

1. Commercial Court, QBD, 20th May 2005

2. [1994] 2 Lloyds Rep. 227