U.S. Coast Guard Security Inspections - The "Doric Pride" Appeal Decision

April 2006

The original Commercial Court decision in the "Doric Pride" was featured in an August 2005 website article: "U.S. Coast Guard Security Inspections - Who Bears The Cost Of Delay?"

In dealing with the question of whether time lost waiting for inspection by the United States Coast Guard under a trip time charter would be for owners or charterers account, the Court decided in favour of charterers for reasons which were met with a measure of criticism at the time. The Court of Appeal has upheld the decision, if not for the same reasons.

The relevant charter party clause read: -

"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. Owners argued that the proviso at the end of the clause meant liability for time loss fell on charterers, because the detention occurred by reason of "calling port of trading".

The contract was for a "trip time" charter to charterers and they had fixed on voyage terms below them. The Judge held that, in many respects, the trip charter was akin to a voyage charter, in that calling ports are generally restricted, and are to a large extent agreed between owner and charterer on fixing. Under a voyage charter, the risk of delay of the type faced by the "Doric Pride" would generally fall for the account of the owner, the owner arguably having accepted the risk of going to a U.S. port.

Under a longer-term time charter, the charterer is usually given a wide commercial discretion as to trading ports. Consequences of delay are more likely to fall on charterers, delay of this nature being a consequence of the charterer's employment.

A proviso of the type found at the end of clause 85 of the "Doric Pride" contract affords the owner a benefit he would not normally have were he to contract on voyage charter terms. He would be able to say: "This is to do with the employment of the vessel and therefore the charterer is responsible". He might therefore avoid a liability he may have suffered were he to have performed on a voyage as opposed to a trip-time basis.

In the event the Commercial Court at first instance found for charterers for alternative reasons, which overrode clause 85. The calling of the vessel at a US Gulf port was agreed between the owner and charterer. Evidence had been adduced that the vessel might have been subjected to USCG inspection at any of the US Gulf ports, as at the time the USCG was operating a policy whereby any vessel calling for the first time at any US port (as was the "Doric Pride"), would be at risk of being inspected, with New Orleans being particularly strict in applying that policy.

Therefore as the particular risk did not arise as a result of the exercise of a commercial trading restriction within the range but was a risk applicable to all ports in the range, it was held this risk was for Owners and the Vessel remained off hire.

Some commentators felt that the Commercial Court had forced the contractual terms to fit a perception about how a trip time charter should operate, rather than simply reading the terms and applying them.

On appeal, the owners had their chance to have their arguments heard again. Unfortunately for the owners, the Court of Appeal still found a way to prevent them from benefiting from the clause 85 proviso. The Court looked at whether the policy of the USCG applied to the vessel, or applied to the port itself and whether the risk was on Owners side of the line or on Charterers based on the risk allocation clause under the time charter. They held that this particular risk, that of being detained as a first time caller, was an owner's matter and equated to it not having appropriate certification. They agreed with Owners that to categorise the charter as akin to a voyage charter was inappropriate. They also indicated that it was inappropriate to apply a test in relation to an express risk allocation clause, Clause 85, which was dependent upon the exercise of a commercial discretion to trade within a range. In this at least the trip time charter was brought in line with the longer time charterers above it as to risk allocation and whether the Vessel was on hire.

The lesson for owners who charter out on a trip time basis is to exercise care. Either contract on terms which expressly provide that charterers will be responsible for delay arising as a consequence of USCG inspections, for instance in the way of the US Security Clause for Time Charters, or accept that on a trip time basis, their legal position on delay may be more akin to a voyage-charter owner, but without the benefit of a suitably worded laytime and demurrage mechanism to assist.