London Arbitration 11/23
A dispute arose between disponent owners and charterers over a charterparty formed in May 2019 which utilized an amended NYPE form and was confirmed through a fixture recap email. The charterparty was written to include bunkering provisions based on the impending IMO 2020 fuel regulations. The vessel’s redelivery was delayed due to cargo payment issues, causing it to have excess HSFO onboard after the regulation’s deadline. Owners claimed losses, including voyage expenses, de-bunkering costs, HSFO value, cleaning expenses, port charges, and an outstanding hire balance. Charterers contested responsibility for late redelivery, arguing the contract did not explicitly cover HSFO-related issues and implying the owners were aware of the risks.
The Recap included the following provisions:
05. Period/intended duration – For abt four months – max till 15th Dec 2019 time charter … Abt meaning +/- 15 days
09. Hire/hire payment – Hire usd 12100 diot payable delivery 15 days in advance …
10. Bunker clause – Bod [bunkers on delivery]: abt 1100 mt hsifo [high-sulphur fuel oil] and about 95 mts lsgo [low-sulphur gasoil Bor [bunkers on redelivery]: IFO
If Redly Sept/Oct Bor to be ABT 250-Abt 450 MT.
If Redel Nov-Dec BOR to be Abt 100-Abt 250 MT.
Prices USD 410 FOR HSIFO AND USD 625 FOR LSGO
BOD=BOR
Charterers to discuss with owners when they tender 30 days redely notice and will endeavour to redeliver vessel with IFO Qty
per owners desired qty, +/- 40 mts, in order to comply with IMO 2020 regulations.”
The Charterparty included the BIMCO Hull Fouling Clause for Time Charterparties:
BIMCO HULL FOULING CLAUSE FOR TIME CHARTERPARTIES
(a) If, in accordance with Charterers’ orders, the Vessel remains at or shifts within a place, anchorage and/or berth for an aggregated period exceeding:…*if no such periods are agreed the default periods shall be 22 days for tropical zone or seasonal tropical zone or 25 days elsewhere.
(b) In accordance with sub-clause (a) either party may call for inspection which shall be arranged jointly by Owners and Charterers and undertaken at Charterers risk, cost, expense and time.
(c) If, as a result of the inspection either party calls for cleaning of any of the underwater parts, such cleaning shall be undertaken by the Charterers at their risk, cost, expense and time in consultation with the Owners.
(d) Cleaning in accordance with this clause shall always be carried out prior to redelivery. If, nevertheless, Charterers are prevented from carrying out such cleaning, the parties shall, prior to but latest on redelivery, agree a lump sum payment in full and final settlement of Owners’ costs and expenses arising as a result of or in connection with the need for cleaning pursuant to this clause.”
Background Facts
Upon entering the charterparty, both parties were aware of the impending IMO 2020 fuel regulations which were to start January 1, 2020. Clause 10 of the recap reflected this awareness, stipulating decreasing HSFO quantities based on redelivery timing, to align with the IMO 2020 requirements. The vessel reached its final discharge port on September 27, 2019, and faced delays in cargo discharge due to payment issues. The vessel was eventually redelivered on February 4, 2020, with 165.475 MT of HSFO and a fouled hull. Post-redelivery, hull cleaning, and de-bunkering of the HSFO occurred.
Owners’ Claims
The owners’ claims included: Time and bunkers for sailing to the de-bunkering port; Time and bunkers used for de-bunkering; Value of de-bunkered HSFO; Time and bunkers for underwater cleaning; Port expenses at the de-bunkering port; Additional cleaning costs; and Outstanding balance of hire. In total, the owners claimed losses of US$240,070.63.
De-Bunkering and Late Redelivery
The owners argued that charterers’ breach of clause 10 caused late redelivery with non-compliant HSFO which necessitated de-bunkering. Charterers disagreed, asserting the charter’s termination by December 15, 2019, and that compliance with IMO 2020 beyond that date was the owners’ responsibility.
The charterers cited the precedent of Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] 2 Lloyd’s Rep 275 from the House of Lords, and asserted that the losses claimed by the owners were not eligible for recovery. The owners countered by arguing that The Achilleas exclusively addressed loss of earnings and could not be applied to losses from delayed redelivery combined with the start of the IMO regulations.
The tribunal decided it was clear there would have been no claim if the charterers had redelivered the vessel by 15 December 2019 as anticipated. Further, they found that both parties were aware of IMO 2020 implications and that the charterers’ breach led to late redelivery with HSFO. Citing Lord Rodger in The Achilleas, the tribunal found Hadley v Baxendale (1854) 9 Exch 341 was brought “into play” and that the charterers were aware of the consequences of redelivering the vessel late and with the high quantity of HSFO bunkers onboard. The type of loss claimed was, therefore, within the consideration of the parties at the time the charterparty was fixed and so recoverable in principle.
Since the losses were foreseeable, the charterers were liable.
Voyage to De-Bunkering Port
The charterers contended that a ballast voyage to the de-bunkering port was always intended, citing bunker quantities specified in clause 10. The tribunal confirmed that the vessel would have proceeded to the de-bunkering port irrespective of the charterers’ actions and dismissed the owners’ claim for time and bunkers used to sail there.
Costs of De-Bunkering and Value of HSFO
The charterers stated any recovery for MGO should be based on the charterparty price, not the actual supply price, and challenged the value of de-bunkered HSFO claiming the owners had failed to mitigate their losses. The owners cited Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452, reiterating that the sale of the vessel’s HSFO had been a distressed sale and that they had acted prudently to achieve the best price they could.
The owners’ claim for time and bunkers during de-bunkering was granted. The tribunal acknowledged that the purpose of the HSFO sale was to offload the bunkers, not maximize revenue from the sale, and accepted the price used by the owners.
Hull Cleaning and Port Expenses
The owners stated that the vessel exceeded the time frame in the BIMCO Hull Fouling Clause, leading to fouling. Since no hull cleaning occurred before redelivery, they sought compensation for losses caused by the charterers’ breach. This was aimed at restoring their position had the breach not happened. The charterers’ also violated clause 4 by not redelivering the vessel in like good order and condition as on delivery. The owners had to clean the hull post-redelivery at their own cost due to the charterers’ initial payment only covering the first cleaning.
The charterers countered that they could not arrange hull cleaning at discharge and had proposed a $20,000 payment, which the owners refused. They further argued that the decision to clean at the de-bunkering port was the owners’, and thus was not recoverable.
Since it was determined that the vessel would have gone to the de-bunkering port regardless, and with the charterers having covered the actual cleaning expenses, the owners’ claim was restricted to the time and fuel expended during cleaning.
Additional Cleaning Costs
The owners claimed for additional cleaning costs. Charterers contested without proof of payment. The tribunal found that the parties had come to an agreement on this particular compensation level. This agreed-upon amount had been paid within the ongoing charter account between the owners and the head owners of the vessel. As a result, the owners had a rightful claim to receive the agreed-upon payment.
The Award
The owners were partially successful. The tribunal found the charterers liable for the late redelivery of the vessel with HSFO onboard and ordered them to pay US$91,190.57, with interest, as well as 70% of owners’ costs.