Off Hire - Service Immediately Required or Charter Service as a Whole?

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The High Court decision in Minerva Navigation Inc v Oceana Shipping AG (the “Athena”), which was itself an appeal from a London arbitration, is discussed at: http://www.steamshipmutual.com/publications/Articles/Athena0613.htm
The arbitrators had decided that the vessel was off-hire under an amended clause 15 of the NYPE 1946 charterparty. The Court upheld the appeal by owners on the basis that for a vessel to be off-hire, charterers need to demonstrate that there was, in fact, a net loss of time to the chartered service in order to benefit from the clause, as opposed to a loss of time in performance of the service immediately required of the vessel.

The decision has attracted criticism – in particular, in an article on the LMAA website by Andrew Baker QC, Julian Kenny and Terence Coghlin.

Clause 15 is a ’net loss of time’ off-hire clause “… in the event of loss of time from … default of master … or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost … and all extra expenses directly incurred including bunkers consumed during period of suspended hire shall be for Owners’ account…”

Background facts

The vessel had loaded a cargo of wheat at Novorossiysk for carriage to Syria, but the cargo was rejected at the discharge port. Therefore, charterers ordered owners to discharge at Benghazi, Libya but because of delays while the bills of lading were re-issued the vessel did not proceed directly to the new discharge port and instead drifted some 50 miles off Libya. In total, the vessel drifted for a period of around 11 days in international waters until the bills of lading were re-issued to allow discharge in Libya. The vessel then proceeded to Benghazi for discharge.

The vessel had been chartered on an amended NYPE 1946 charterparty. Clause 8 required the Captain to prosecute the voyage with the utmost despatch, and that the Captain was under the orders and directions of charterers as regards employment and agency.

Charterers claimed that the vessel was off-hire for the drifting period outside Libyan waters because owners had not performed the service then required of the vessel – to proceed to the discharge port. Owners argued there had been no net loss of time as the vessel would not, in any event, have berthed at Benghazi any earlier than it did.

Arbitration

By a majority, the arbitrators agreed with charterers that at the start of the drifting period the vessel was obliged to continue to proceed to Benghazi, but wrongfully failed to do so until the end of the drifting period. Their view was that the relevant test was following “The Berge Sund” [1993] 2 Lloyd’s Rep. 453, whether there was an “immediate loss of time” in relation to the service then required. That is, all charterers needed to demonstrate was:

(a) that there was a default on the part of the master; and 

(b) that in consequence there was an immediate loss of time.

In their view, clause 15 was not concerned with the time the vessel would have waited at Benghazi before berthing. Therefore, the vessel was off-hire for the period when she was drifting off Benghazi.

However, the arbitrators did dismiss charterers’ alternative claim for damages for breach of owners’ obligation of utmost despatch under clause 8 because there was no overall loss of time.

Appeal

The question on appeal was:

“Whether under clause 15 of the NYPE charterparty (and of the present Charterparty) the Vessel is off-hire for a particular period merely because the Vessel is not efficient for the services then required during that period, or whether the Charterers have to further show a net loss of time resulting thereby.”

In deciding the question in owners’ favour, Mr. Justice Walker decided that it was not sufficient for charterers merely to show that, as regards the service immediately required, there was a net loss of time. As such, the vessel remained on hire during the 11 days lost while drifting in international waters because, as a consequence of the delays in berthing at Benghazi, there was no overall loss of time to the chartered service.

The Court of Appeal

Charterers appealed to The Court of Appeal. In restoring the tribunal’s decision Lord Justice Tomlinson said:

“I have no doubt the arbitrators were right. The judge’s view is unjustified by the wording of the clause, inconsistent with the conventional approach to the clause ... inconsistent with hallowed authority and could moreover lead to the need for “the most intricate and speculative enquiries as to the course which events would have taken if full working of the vessel had not been prevented...”

...

“Whether the same amount of time would have been lost for other reasons at another stage in the chartered service is not a relevant consideration … Quite apart from this being the natural construction of the language under consideration, there are sound practical reasons for this approach. It avoids intricate calculations, enabling the parties to know where they stand without having to wait on events subsequent to the period of inefficiency, a consideration of primary importance bearing in mind the remedies available to the owners in the event that payment of hire is not made punctually.”

The tribunal based its decision on The Berge Sund (1993) 2 LLR 453. In that case, the vessel was delayed in starting to load because of the need to carry out tank cleaning made necessary in consequence of charterers’ choice as to the sequence of cargoes to be carried. Staughton L.J. said:

“The reasoning in that decision seems to me equally applicable in the present case, whether one is considering ‘loss of time’ or ‘preventing the efficient working of the vessel’, or ‘again in an efficient state’ In each case one has to decide whether Berge Sund while at Ras Tanura, was in the words of Lord Halsbury ‘efficient to do what she was required to do’ by the charterers.”

And later that in the same case:

“In my opinion the critical question is, what was the service required of the vessel on Dec 20 1982? What were the charterers’ orders? They were not to load cargo; as I have said, that was the very last thing that the charterers would have ordered, since the copper strip test had been failed. The orders were, in part, expressly and at all relevant times by implication, to carry out further cleaning. That was the service required, and the vessel was fully fit to carry it out.”

Subsequent to the Court of Appeal’s decision in the “Athena”, it is clear that events occurring after the end of an off-hire event are not relevant. It is the service immediately required of the vessel by charterers and, because the clause in the Athena was a net loss of time clause, any time lost in the performance of that particular service, not the charter service as whole, is relevant when determining if the vessel is off-hire under clause 15 and what time is lost (and in respect of which hire is not payable) in that off-hire period.