London Arbitration 9/22

AMENDED NYPE – OFF HIRE – FAILURE TO PRESENT CLEAN HOLDS – DAMAGES FOR FAILURE TO PRESENT CLEAN HOLDS – RATE OF OFF-HIRE – BREACH OF CHARTERPARTY

Off-hire for unclean holds – The charterparty specified the vessel would be ready to receive any authorized cargo per the charterer’s/surveyor’s specifications upon arrival at the first and subsequent ports (Lines 21-22). In addition, the holds would be presented clean, dry, free of rust and residue, and ready to load cargo. If the holds failed inspection by the surveyor, the vessel would be placed off-hire until the time she passed survey, with all related charges going to the owners. (Clause 49)

On 2 October and 4 October, the holds failed two separate surveyor inspections. The same entity completed both inspections, and both rejected the holds for loading the specified cargo. The critical difference was the 2 October inspection form was marked *(ADVISORY TO MASTER ONLY) *. The charterer claimed off-hire began on 2 October, while the owner counterclaimed off-hire started on 4 October.

The controversy was rooted in communications between the parties before the inspections occurred. On 1 October, the charterer emailed the owner advising that surveyors at the port were very strict and, if the vessel were to fail inspection, she would be placed at the back of the berthing list. The charterer suggested hiring a surveyor to complete an inspection to avoid any potential delays and proposed the owner share the cost 50/50. 

The owner agreed to hire the surveyor and to the cost-sharing. In addition, it asked for  clarification whether this inspection would be a pre-inspection or an official inspection. The charterer replied it would be a pre-inspection, with final inspection to occur alongside. 

The surveyor rejected the holds in the 2 October inspection and the owner began corrective actions. On 3 October, the owner was shocked to receive notice from the charterer indicating the vessel was being placed on off-hire due to the failed pre-inspection. 

Citing the previous email correspondence, the owner asserted that both parties had agreed the 2 October survey was to be used solely as an advisory/informative tool to help the master understand the surveyor standards and avoid potential delays. The owner pointed to the cost-sharing of the pre-inspection and claimed this understanding constituted a variation of or collateral contract to the existing charterparty.

In contrast, the charterer claimed the “advisory” function of the inspection was not agreed upon but appropriated from the surveyor’s note at the top of the report. It acknowledged the email exchanges detailed two inspections but stated that, for charterparty purposes, only the 2 October survey was relevant. The alongside inspection was only to be used to determine if the shippers would load cargo.

The tribunal held that the language of the correspondence clearly outlined the first inspection as informative and without penalties to the owners for off-hire. The terminology describing the inspection was secondary to the intent implied between the charterer and owner in these messages. The notation on the 2 October form of “ADVISORY TO MASTER ONLY” contrasted to the 4 October formal survey on behalf of the charterer and supported this claim. Accordingly, the tribunal concluded off-hire could only be claimed from the date of the 4 October inspection. 

Claim for damages – The charterer also alleged breach of charterparty for the unclean holds and claimed both off-hire and damages. Had the holds passed inspection, the vessel could have berthed on or before 11:20 on 9 October. Since the holds were not cleared until 10:10 on 12 October, the vessel did not berth until 16:05 on 18 October. The charterer claimed off-hire up to 10:10 on 12 October and, thereafter, damages until the vessel berthed. Damages were billed at the basic charter rate of US$6,250/day. 

The delay also put the charterer over the first 55 days of the charter period expiration and caused an increased hire rate of US$12,000/day. The charterer claimed the difference between the basic rate and higher rate of US$47,138.50 be returned to them. 

The owner countered that the charterer was attempting a double recovery by claiming both off-hire and damages for the same events. It stated clause 49 was applicable for off-hire based on the delay from the unclean holds, so damages were not warranted. In addition, clause 56 allowed charterers the option to add off-hire time to the end of the charter term.

The tribunal held clause 49 sufficiently addressed the penalties for off-hire due to the rejected holds and superseded any damage claim. Further weakening the request was that clause 56 allowed off-hire to be added to the end of the charterparty.

Off-hire rate – Clause 4 of the charterparty clearly stated payment for hire would be “…at the rate of US$6,250 per day pro rata including overtime for the first 55 days and US$12,000 per day thereafter.”  Debate ensued whether the off-hire period should be counted or excluded in the 55 days. The owner claimed yes, while the charterer countered that since the rejected holds constituted a breach of the charterparty, the owner could not count the off-hire days within the 55, or it would effectively benefit from its own breach.

The tribunal acknowledged this was a common dispute but did not find any precedent or previous rulings. It concluded that the decision had to be made based on the specific language in clause 4. While some charterparties included specific references to “on hire” days, the current charterparty did not; Therefore, the owner was within reason to use the off-hire rate of US$6,250 during the first 55 days and charging the US$12,000 daily rate on day 56 and after.

The owner was awarded the total amount claimed, plus interest and costs.