UK: Test For Net Loss Of Time Under NYPE Off-Hire Clause

Last Updated: 4 January 2013
Article by Daniel Jones and Alex Chisholm

Minerva Navigation Inc v. Oceana Shipping AG (M/V Athena) [2012] EWHC 3608 (Comm)

The dispute in this case arose out of the vessel's failure to proceed immediately to her new discharge port when ordered to do so by the charterers. The charterers claimed that the vessel was off-hire for the period she spent drifting rather than proceeding to the discharge port. An issue with the bills of lading meant that, even if the vessel had proceeded to port immediately upon charterers' orders, she would not have been able to commence discharging any sooner. The owners argued that there had therefore been no net loss of time in the performance of the charter service overall and that the vessel remained on-hire for the disputed period. The charterers contended that the test should be whether there had been a loss of time in performance of the services immediately required of the vessel; in this case, to proceed to the discharge port. The Commercial Court, allowing the owners' appeal from the arbitration award, held that the correct test under clause 15 NYPE 1946 was whether there had been a net loss of time in the charter service overall. On the facts, this provided the owners with a defence to the claim.

The background facts

Minerva Navigation ("owners") time chartered the vessel to Oceana Shipping AG, who in turn sub-chartered her to Transatlantica Commodities SA ("charterers"). Save for the rate of hire, the charterparty and the sub-charterparty were on materially identical amended NYPE 1946 terms. The relevant part of the off-hire provision at clause 15 read:

"...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..."

The vessel loaded a cargo of wheat for carriage to Syria and bills of lading were issued showing discharge ports in Syria. The vessel sailed to Syria, but the cargo was rejected. The charterers gave instructions for the goods to be carried to a substitute port in Libya (Benghazi). Under the terms of the charterparties, the change in discharge port obliged the charterers to return the original bills of lading in order for them to be reissued. This took some time to resolve, however, due to a difficulty with the original bills. In the meantime, the vessel departed Syria and entered international waters outside Libya.

On 19 January 2010, the charterers ordered the vessel to Benghazi port anchorage to await further instructions before berthing. Due to the difficulty with the original bills of lading, the vessel instead proceeded to a position about 50 miles off Libya where she began a period of drifting (the "drifting period"). The drifting period continued until 30 January when the difficulty with the bills of lading was resolved and the vessel proceeded to port as ordered. The vessel berthed on 3 February and thereafter commenced her discharge operation.

The arbitration award

The claim that the vessel was off-hire for the drifting period was passed up the charterparty chain and went to arbitration. The arbitrators found that the failure of the vessel to proceed to port when ordered to do so on 19 January constituted a "default of master" (a cause falling within clause 15) and that this had resulted in a loss of time in performing the service immediately required of her. Relying on the Berge Sund [1993] 2 Lloyd's Rep. 453, the tribunal decided that this was sufficient for the off-hire claim to succeed. The fact that the same time would have been lost for other reasons (in this case, the difficulty with the bills of lading) even if the vessel had proceeded directly to Benghazi did not change the arbitrators' view that the vessel was off-hire for the entire drifting period. The owners appealed.

The Commercial Court decision

The question under appeal was formulated as follows:

"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."

Mr Justice Walker began by identifying two prerequisites for clause 15 to come into play:

1. that a cause prevents the full working of the vessel (i.e. her ability to fully perform the service immediately required of her); and

2. that the cause in question is a prescribed cause (i.e. falling within the description in clause 15).

If these prerequisites are met, clause 15 is engaged. However, that is not enough for an off-hire claim to succeed; the court must then apply the wording of the clause to the facts to determine what consequences were intended to be brought about. Mr Justice Walker drew an important distinction here between the clause being engaged, on the one hand, and the consequences flowing from the wording of the clause, on the other. In this case, he found that the prerequisites above had been met and that clause 15 had therefore been engaged. As to the consequences, the essential question was whether "time thereby lost" applied to a period of time where, although charterers could show that the service immediately required of the vessel was delayed due to a prescribed cause, they could not show that there had been a net loss of time in performing the chartered service overall.

The judge decided that the ordinary meaning of the words "time lost thereby" required there to be a net loss of time in performance of the charter service overall. In his view, there was good reason to suspend payment of hire only to the extent that there was a loss of time overall; otherwise the charterers would gain a windfall. He found nothing in the relevant authorities to contradict this view. In particular, the Berge Sund was distinguished on the grounds that, in that case, the off-hire clause was not engaged at all; although the vessel could not commence loading until hold cleaning had been done, the service immediately required of her was held to be the hold cleaning itself, which she was efficient to carry out. Prerequisite 1) above had not been met and the Court of Appeal in that case did not therefore need to consider the consequences that flowed from the wording of the clause.

In light of the arbitrators' finding of fact that the bill of lading issue would have delayed discharge in any event, the judge concluded that there was no loss of time in the context of the chartered service overall. The consequences of clause 15 being engaged by default of master preventing the vessel from proceeding to port were therefore none in terms of "time thereby lost" and the judge allowed the owners' appeal.

Comment

The decision in this case demonstrates that the court will give effect to "net loss of time" clauses such as the one at clause 15 of the NYPE 1946 form. The court endorsed the analysis of the authors of Wilford on Time Charters that charterers must show both a "loss of a period of service" and concurrently that there has been "delay to the progress of the adventure".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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