London Arbitration 26/16 - Shortloading Claims
This decision looked at whether Charterers were able to claim damages from Owners for losses incurred, as a consequence of a short loading, between the seller and buyer of the cargo. The seller of the cargo was a wholly owned subsidiary of the Charterers. The Tribunal considered whether the losses could be passed on to Owners under the charterparty.
The vessel was chartered on an amended Baltimore Form C Berth Grain form for the carriage of:
“…a full and complete cargo, in bulk, subject to limits guarantee, 55,000 metric tons, 10% more or less in Owners’ option bulk HSS (intention soyabeans) stowage factor about 48 feet, without guarantee. Owners warrant the vessel is able to load, stow and carry the cargo as described, without any bagging, strapping or securing.”
The vessel loaded 49,237.739mt of cargo which was 262.261mt less than the minimum contractual requirement of 55,000mt, less ten per cent in Owners’ option. As a result of this short loading, the buyer demanded a discount on the sale price and, after settlement discussions with the seller, a discount was agreed at US$180.915.70. Charterers brought arbitration proceedings against Owners to claim this amount in damages.
Charterers argued that Owners had breached the charterparty as there was more than sufficient capacity to load the minimum quantity of cargo. This was especially so as hold no.3 was slack upon sailing. Charterers also argued that Owners had breached the charterparty by presenting a vessel that was unable to carry the minimum quantity of cargo.
Owners’ defence to the short loading claim was that the charterparty qualified their obligation to load a minimum quantity of 49,500mt because of the reference to the stowage factor of “about 48 feet”. The term “about” permitted a three per cent allowance. The stowage factor of the cargo was in fact 49.77ft - more than this three per cent allowance.
The Master’s calculation for the maximum quantity of cargo to be loaded was 49,620mt based on a stowage factor of 48.5ft. Charterers did not object and Owners contended that Charterers were, therefore, stopped from arguing that less cargo had been loaded because the stowage factor had been higher than that used by the Master in his calculation.
Owners also argued the loss which Charterers suffered did not arise under the charterparty, but under the sale contract – and Charterers were not a party to this. Although the seller of the cargo was a wholly owned subsidiary of the Charterers, as they were separate legal entities, they could not step into the shoes of the charterer to claim against the owner without any proof of assignment or transfer of the right to pursue the claim. Owners also said that the losses claimed by Charterers were too remote.
Charterers countered Owners’ argument in respect of the stowage factor by pointing to the words “without guarantee” which followed the stowage factor, meaning that no warranty was in fact given.
Charterers did not address Owners’ point that the seller was a separate legal entity.
Charterers denied the claim was too remote since the loss claimed was a direct consequence of the vessel being unable to load the full quantity of cargo.
It was decided that Charterers had not breached the charterparty in relation to the stowage factor as this had been given “without guarantee”, meaning that there was no contractual warranty in this respect. Furthermore, there were reasonable grounds for assuming that the stowage factor would be about 48 feet.
The Tribunal did not have enough evidence to ascertain whether the Master was to blame for the short loading of the cargo. As Owners had specifically warranted that the vessel could load, stow and carry the cargo as described, the onus was on them to show that any difficulty in complying with the warranty was the fault of Charterers. Owners were therefore in breach.
However, Charterers’ claim for short loading failed. Whilst the tribunal accepted the reduction in the price of the cargo did not appear to be attributable to any other factor than the short loading there was no evidence to demonstrate that Charterers would be liable for losses incurred by the seller.
In any event, the Tribunal decided the losses being claimed by Charterers were too remote to be recoverable from Owners. It would not have been in the reasonable contemplation of the parties when entering into the charterparty that any short loading would lead to a general reduction in price of all cargo actually carried.
Members should be aware of the effect the words “without guarantee” will have upon their rights if inserted into any charterparty clause, not just those referring to stowage factors. Under English law, if the words “without guarantee” are inserted into a clause, absent bad faith, it will mean that the party in question has given no contractual undertaking in respect of that clause. This would make any claims for damages under such a clause extremely difficult.
Members should also bear in mind that generally the onus will be on vessel owners to ensure that the vessel is able to stow and load the amount of cargo stated in the charterparty, especially if owners have warranted to do so (as Owners had done in this case). Although Owners were not held liable for Charterers’ losses, they were still found to be in breach of the charterparty. If the Charterers and the shipper had been the same entity, the decision may have been different.
Claims for lost profit under sale contracts due to shortloading of cargo are unlikely to succeed against Owners. Unless in the contemplation of the parties when contracting they will be too remote, and not recoverable.