Nominal Arbitration Awards - Beware Cost Penalties

April 2006

A recent award of costs in a London Arbitration serves as a warning to potential litigants of the financial consequences of pursuing claims of limited merit.

The case concerned Owners' claim for $64,121.86 as the final balance of account due under a NYPE time charter, part of which related to deductions for alleged off hire at a discharge port. The vessel had been required to have an arrival draught of 9.75m on an even keel and declared so by the master. However, the harbour authorities found the draught to be 10.05m and that the vessel had a "serious" hog. The vessel was ordered out to the anchorage for "security reasons". Subsequently, some 3 days an 20 hours later the vessel returned to the lightering berth, lightered to 9.58m and proceeded to the main silo berth to complete discharge. Charterers deducted hire for this period pursuant to clause 15; they had been denied the full working of the vessel as a consequence of the master's negligence in miscalculating the cargo that could be loaded and this constituted a " …default of crew, officers or Owners.....".

The Owners argued that regardless of the vessel's draught on first arriving at the lightering berth it would have been necessary to lighten the vessel before proceeding to the main silo, and the vessel was in any event always capable of performing the service then required by Charterers - to lighten.

The tribunal did not agree. The refusal to allow lightering and loss of time was a consequence of port authorities security concerns caused by one or a combination of the vessel 's excess draught, uneven keel, or hogged condition, which were attributable to the "default of the crew" in failing to calculate correctly the ship's hydrostatic condition . The deduction of hire was justified save that Charterers had miscalculated the loss of time by US$1,021.57. This sum, plus a shortfall of US$335.31 on an undisputed sum paid during the hearing, and interest was awarded to Owners.

Although Owners were the recovering party their claim for hire deducted had substantially failed. Therefore, the tribunal penalised Owners by ordering that they should bear their own costs in full plus 75% of Charterers' recoverable costs, as well as 75% of the tribunal's costs. No doubt Owners' costs were significantly in excess of the sum they recovered. This case serves as yet another reminder that costs liabilities should be factored into the decision whether or not to litigate.