Tank Cleaning - The Scope of Implied Indemnities Flowing from Charterer’s Orders or Requests

In this article the problems which can sometimes arise when preparing a vessel to receive cargo are discussed and the protection which may be available to owners in such circumstances is explored.

 

Under a time charter, charterers have a 'dominant' role when it comes to the employment of the vessel and they utilize the vessel in such a way so as to maximize the vessel’s full profit-earning capacity. Charterers give orders to the master of the vessel throughout the voyage relating to many issues such as preparation of the vessel to receive cargo, routing, and discharge of cargo and, very often, the charter itself expressly allocates the risk arising from the employment of the vessel. However, in the absence of the latter, it falls to the courts and arbitrators to determine how the risks and liabilities are to be allocated.

 

Not all orders given by charterers are contractual/lawful and where charterers give an unlawful order the owners will have two options: either refuse to comply with the order and call for fresh lawful orders, or obtain a Letter of Indemnity from charterers to cover the risk of loss or damage in return for complying with that order. However, what happens if the orders given by the charterers are contractual and damage or loss occurs as a result of complying with such order? In such a scenario, owners have to comply with the orders but may[1]be entitled to an indemnity from charterers provided certain conditions are met.

 

An indemnity will be express if the charter expressly states that charterers will indemnify  owners in the event that the owners incur a liability as a result of the master's compliance to charterers’ orders (see clause 9 Baltime charter).

 

More often, there is no express indemnity and the charter merely contains the following employment clause:

 

"The master shall be under the orders and direction of the Charterers as regards employment of the vessel and agency."

 

The English courts have held that such a clause may entitle owners to an implied indemnity against the consequences of complying with charterers’ orders. In The "Island Archon", Evan LJ justified the implied indemnity principle as follows:

 

"…if the charterer requires to have the vessel at his disposal…then the owner must be expected to grant such freedom only if he is entitled to be indemnified against the loss and liability resulting from it, always subject to the express terms of the charterparty contract." [1994] 2 Lloyd's Rep 227 CA, 237

 

The employment clause needs to be read in the context of other clauses in the charter as an indemnity will not be implied if it would be inconsistent with the express terms of the charter (see the obiter comments of Staughton LJ in the "Berge Sund" [1993] 2 Lloyd’s Rep 453 (C.A.) @ 463) .

 

What, though, is the position so far as indemnities are concerned in the case of tank cleaning?

 

In the LPG and LNG trades charterers will often be responsible for providing the cleaning materials at their expense and they will also be entitled to advise the master with regards to the cleaning methods. For example the Shelltime 4 charterparty provides:

 

"Master shall thoroughly clean tank pipes and pumps after every discharging to the standard advised by the charterer…costs and expenses in connection with cleaning including but not limited to use of chemical to be for the charterer's account" and

 

"Charterers shall from time to time give the master all the requisite instructions."

 

 

The rationale is that the charterers are better placed and have greater experience and knowledge of the cargoes characteristics. As Staughton LJ said in the "Berge Sund":

 

"…cleaning is in the ordinary way an activity required by a time charterer. It is his choice what cargoes are loaded, and consequently when and what cleaning is required." [1993] 2 Lloyd's Rep. 453, p. 461

 

As can be seen these clauses make no mention of the fact that an indemnity may arise if the master follows a lawful or unlawful order from charterers and incurs loss or damage as a result, and refer to charterers providing advice and instructions.  

 

 

"When an act is done by one person at the request of another which act is not manifestly tortuous to the knowledge of the person doing it, and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested it should be done."

 

In this respect the authorities do not make a distinction between indemnities for complying with charterers’ orders or requests. (see "Island Archon", op cit, at p232) Indeed, Scutton states a shipowner may be entitled to an indemnity for complying with a time charterer’s requests or orders. However, in a recent arbitration dealing with vessel tank cleaning, in which the Club was involved, the Tribunal drew a distinction between orders and requests that the vessel charterers were entitled to give. The Tribunal interpreted the "Nogar Marin" (a case involving issuing bills of lading) as authority for the proposition that a request to act in a particular way involves a tacit offer to indemnify (whereas an order does not) and the person seeking the indemnity is regarded as having accepted the offer. They went on to conclude that it is not possible to spell out such an offer to indemnify without disturbing the allocation of risks in the rest of the charterparty. In other words, they decided that where owners had already assumed responsibility for tank cleaning, charterers’ request as to how the cleaning operation should be carried out could not create a new obligation by way of implied indemnity.

 

Following the rationale of that decision, whilst it may be fairly clear that owners will be entitled to seek an implied indemnity where the master follows charterers’ orders, it is may now be less clear whether there is an indemnity if the charterers merely make a request.

 

This is a very unsatisfactory situation, although it is to be hoped that other Tribunals will consider themselves bound to follow the authorities referred to above.

 

It is also worth noting that these authorities involve situations in which a liability is incurred to a third party. However, there should be no reason to limit the scope of implied indemnities to third party damage. This position is confirmed by the "Athanasia Comninos" [1990] 1 Lloyd’s Rep. 277 at p290 per Mustill J (the same Judge as the "Nogar Marin" above) where owners were entitled to an implied indemnity for damage done to the ship itself caused by an explosion of dangerous cargo after complying with charterers’ orders. However in the arbitration in which the Club was involved the Tribunal refused owners an indemnity for damage caused to the vessel by following charterers’ instructions regarding tank cleaning, contrary to existing authority and all legal principles.  If the indemnity was limited in this way this would result in the extraordinary and unsatisfactory outcome where disponent owners would be entitled to an indemnity from their charterers for their liability to head owners for damage caused to the vessel as a consequence of following their charterers’ requests as to tank cleaning, but if there had been no charter chain head owners would not be entitled to a similar indemnity as happened in the arbitration.

 

A further issue that arose in the arbitration was in relation to the following additional clause in the charter:

 

"Master shall thoroughly clean tanks, pipes and pumps after every discharging to the standard advised by the charterer…and the coating manufacturers or stainless steel manufactures' whatever are applicable recommended procedures. In the absence of any such advice, the Master shall always clean the vessel's tanks, pipes and pumps to water white standard as soon as possible after discharge."

 

This clause clearly allows the charterers to advise the master on the standard of cleaning to be applied.

 

The charterparty in question also contained the usual employment provisions which gave charterers powers to give “all requisite instructions” and “orders and directions as regards employment of the vessel, agency and other arrangements”.

 

The effect of such clauses was recently confirmed by the House of Lords in the "Hill Harmony" [2001] 1 AC 638 in which is was held that “orders as to the employment of the vessel include how (in short) she shall be used or any commercial matter relating to the exploitation of her earning capacity.”

 

This is further supported by the comments of Staughton J in the "Berge Sund" (quoted earlier in this article but repeated here for ease of reference):

 

“cleaning is in the ordinary way an activity required by a time charterer. It is his choice what cargoes are loaded and consequently when and what cleaning is required”

 

 However the Tribunal ignored the employment provisions and made a distinction between the 'standard' and the 'methods' of cleaning to that standard, and decided that where charterers are not entitled to give orders or instructions as to the method of cleaning but owners follow such orders, no implied indemnity is available to owners. In reaching this conclusion the Tribunal appear to have accepted charterers’ argument that a decision as to what method of cleaning to adopt could involve issues relating to the safety or security of the vessel which were not apparent to charterers and which the Master might have to take into account in deciding on the method of cleaning considerations, whereas this was not the case in relation to the standard of cleaning. 

 

This seems an odd and rather arbitrary distinction to draw, given that it is clear from Staughton J’s comments in the "Berge Sund" that the exploitation of the earning capacity of the vessel must include the giving of orders or instructions to cut down the time and materials used in cleaning cargo residues in preparation for the next cargo.

 

Although the Tribunal’s reasoning in this matter is hard to follow, it should be noted that leave to appeal the award to the High Court under s 69 Arbitration Act was refused. In refusing leave the judge did not examine the issues discussed in this article in any detail and refused leave on the basis that the existing clauses of the charter did not provide any scope to consider implying indemnities.

 

As will be appreciated, the law on implied indemnities is not straightforward and the outcome will depend on the contractual matrix as a whole, as well as the precise facts of each case. While the Tribunal’s decision in this particular case was unsatisfactory it does illustrate how careful owners need to be when drafting their contracts.

Article by Christine Vella 

 

[1]Subject to an unbroken chain of causation flowing from that order to the loss or damage.