London Arbitration 15/23

A single-deck geared bulk carrier was chartered to transport nickel ore from the Philippines to China. Owners alleged wrongful deductions by the charterers for underperformance, deadfreight, survey costs, and bank charges and sought US$54,675.21.  The arbitration centered on speed and consumption clauses and weather routing methodologies.

The vessel was chartered via a fixture recap and an amended NYPE 1946 form for a charterparty spanning 25-35 days.  The subject vessel, constructed in China in 2013, had a summer deadweight of 63,525.78 tonnes, a length of 199.9 meters, and a beam of 32.26 meters. The charter outlined the vessel’s speed and consumption capabilities based on various conditions, including weather, sea state, and water temperature as follows:

BALLAST: ABT14KTS ON ABT28.9MTS IFO 380CST + 0.1MTS MDO

LADEN: ABT13.5 ON ABT28.9MTS IFO 380CST + 0.1MTS MDO

SPEED AND CONSUMPTION BASIS MAX WIND FORCE BEAUFORT SCALE 4 AND MAX DOUGLAS SEA STATE 3, CALCULATED BASIS NOT LESS THAN 24 HOURS GOOD WEATHER PERIODS EACH DAY PROVIDED NO NEGATIVE EFFECTS OF CURRENTS OR SWELLS AND NO HULL FOULING DUE TO EXTENDED STAYS IN PORT,

REGARDING COLD WEATHER CONDITION, WHEN VSL IS UNDER SLOW STEAMING ONLY, IF SEA WATER TEMPERATURE IS BELOW 15 DEGREE CELCIUS THERE WILL BE EXTRA BOILER CONSUMPTION AS FOLL–

Boiler Consumption:

FO – Max. 1.0 MT

DO – 0.1 MT (for starting and stopping)

ABT MEANS HAVING AN ALLOWANCE OF +/- 0.5 KNOT ON SPEED AND +/- 5 PCT ON BUNKER CONSUMPTION

ECO SPD/CONSUMPTION (WOG)

11 knots (L) 18.5 MT/day, 12 knots(B) 19.0 MT/Day …

Background

The charter commenced on August 2, with the vessel departing from Surigao, Philippines, on August 30, carrying a cargo of nickel ore destined for Jingtang, PRC. Despite charterers’ instructions for the shortest route and charter party speed, the engine was initially set to 81 rpm, deviating from its operational sea speed of 84.5 rpm.  Bunkers at the commencement of the sea passage were 743.11 mt LSFO and 94.65 mt LSMGO.

The voyage, spanning the western Pacific Ocean and East China Sea, encountered fair weather until September 4. The vessel covered 1,864 miles in 171.5 hours, averaging a speed of 10.9 knots. Upon completion, bunkers remaining on board were 537.08 mt LSFO and 93.9 mt LSMGO. The vessel anchored on September 6 and was redelivered on September 14.

Disputed Claims and Arbitration Clause

The owners sought to recover a balance of hire amounting to US$54,675.21, alleging wrongful deductions by the charterers. The deductions included claims for underperformance, deadfreight, preloading survey costs, and bank charges. The charterers, in response, denied liability.

The charterparty included a dispute resolution mechanism in clause 69, stipulating arbitration in Hong Kong under English law. Since the claimed amount did not exceed US$100,000, the LMAA Small Claims Procedures were followed and a sole arbitrator was appointed.  

Underperformance Claim

The charterers contended that the vessel underperformed based on the Ocean Routing Clause (clause 93), highlighting benchmark conditions related to speed, consumption, wind force, sea conditions, current effects, and hull fouling. The charterers engaged a Weather Routing Company (WRC) to assess the vessel’s performance, while the owners appointed a separate WRC.

In addition to clause 29, clause 93 provided:

Ocean Routing Clause

The Vessel shall be capable at all times during the currency of this charter of steaming as per description. The Charterers may in their option and their cost engage ocean routes or similar service to monitor the Vessel’s course, position, speed, in order to maximise the Vessel’s performance.

Master is to follow Ocean Routes or similar service’s suggestions concerning navigation but Master, at his reasonable discretion may not follow suggested route in which case he has to detail in log book the reasons for departing from them. Any deviation to be advised as soon as possible both Ocean Routes or similar service and to the Charterers stating reason. In the event of any discrepancy or dispute between deck log and Ocean Routes or similar service, a second and independent weather routing company is to be mutually agreed upon and their findings are to be binding for both parties.”

The arbitrator ruled the agreed parameters for the vessel in laden condition were as follows:

Yardstick (average) values

(a) Minimum speed 13 knots

(b) Maximum daily consumption rate 30.35 mt IFO 380 CST

(c) Maximum daily consumption rate 0.1 mt MDO

Benchmark conditions

(a) Winds not exceeding BF4

(b) Sea conditions not exceeding DSS 3

(c) No negative effect of current

(d) No negative effect of swell

(e) No hull fouling due to extended stays in port

(f) Calculations relating to assessment in periods of not less than 24 hours from noon to noon.

Speed and Consumption Claims

The arbitrator scrutinized the reports from both WRCs, emphasizing the discrepancies in methodology and compliance with charterparty requirements. The charterers’ WRC was deemed non-compliant and unreliable, as it failed to consider benchmark conditions and inaccurately assessed wave heights. The owners’ WRC report, conducted in-house, raised concerns about independence and flawed methodology.

Furthermore, the arbitrator doubted the veracity of the ship’s logs.  In his 6 September end-of-voyage report, the master remarked: “DURING THIS VOYAGE, VSL AGAINST STRONG CURRENT, SPEED LOST HEAVILY.” Neither WRC agreed with such an assessment of current. Other than on 30/31 August, both WRCs agreed adverse currents were encountered on most days but only rarely exceeding half a knot. This suggested the master’s remarks concerning current were exaggerated. It was with regret that the arbitrator concluded that the ship’s records did not accurately represent the environmental conditions experienced, which was a breach of clause 11 of the charterparty.

Despite doubts about their motives, the arbitrator considered environmental data from both reports. The reconstructed conditions differed but were similar enough to validate the ship’s records. Both WRCs agreed on wind and wave conditions before September 4, contradicting the ship’s exaggerated estimates. The arbitrator found that the ship’s records breached clause 11 of the charterparty.

Reviewing slip data and fair conditions, the arbitrator determined a 22% slip factor, and fouling of the hull and propeller was established. Analyzing the main propulsion unit data, the arbitrator concluded that the vessel couldn’t achieve warranted speed due to fouling. The owners were in breach of clauses 29 and 93.

The vessel’s maximum speed was 11.2 knots, prolonging the voyage by approximately 23 hours. With a daily consumption rate of 28.8 tonnes, the vessel overconsumed fuel and breached charterparty allowances. The owners were found in breach of contract.

Deadfreight Dispute

The charterers claimed deadfreight due to the owners’ alleged failure to provide well-maintained and workable cranes, which prevented charterers from loading a full cargo.  They disputed the owners’ contention that deadfreight claims did not arise in the context of a time charterparty as the basic rule of recovery was to put the innocent party in the position it would have been had the contract been performed.  They referred to Federal Commerce and Navigation Ltd v Molena Alpha Inc (The Nanfri) [1978] 2 Lloyd’s Rep 132, where Lord Denning held, at page 140 col 2, that: “if the shipowner has been guilty of some other wrongful conduct which has deprived the charterer of the use of the ship during some days – or prejudiced the charterer in the use of the ship – then the charterer should in fairness be able to recoup himself by making a deduction from the next month’s hire”.

The owners argued that clause 118 of the charterparty adequately covered reductions in hire for crane-related inefficiencies.  Clause 118 (Cargo Gear) provided:

… In the event of a crane/grab or crane(s)/grab(s) by reason of disablement or insufficient power, the hire to be reduced pro rata for the period of such inefficiency in relation to the number of cranes or grabs on board the Vessel, unless same breakdown, disablement or insufficiency is caused by the act, neglect or omission of Charterers …”

The arbitrator ruled that clause 118 sufficiently addressed reductions in hire related to crane inefficiencies. Therefore, the charterers were not entitled to additional sums beyond the corresponding off-hire period.

Survey Costs and Bank Charges

It was undisputed that a pre-loading survey had taken place and that the costs were to be shared equally. A balance of US$265 plus bank charges of US$25 remained due from the charterers. As they had not made out a positive case to avoid paying the full amount, they should make good the shortfall of US$290.

Award

Despite the charterers’ wrongful withholding of hire, the owners were found in breach of clauses 29 and 93. The charterers were entitled to damages for the shortfall in speed and overconsumption of fuel, amounting to US$38,828.59. The owners’ successful claims for deadfreight and survey fees reduced the damages to US$27,236.62. Interest, costs, and recovery of the award’s cost were granted to the owners.