THE ATHENA

When is a vessel OFF –HIRE?  The English law position on CLAUSE 15 (of the NYPE Charterparty)

MINERVA NAVIGATION INC. v. OCEANASHIPPING AG (The “ATHENA”)[2013] EWCA 1723

One of the most common clauses raising issues of dispute in shipping practice is Clause 15 of the NYPE charterparty or otherwise referred to as “the Off-Hire Clause”.

This month’s analysis will focus upon a well known judgment of the Court of Appeal in The Athena where the test for the definition of the words “time thereby lost” has been tried and decided upon. The case was heard by three different judicial bodies: An Arbitration Tribunal (deciding in favour of the Charterers), the High Court (overturning the previous decision and deciding in favour of the Owners) and the Court of Appeal (reinstating the decision of the Arbitration Tribunal). Although the final decision in this case was in favour of the Charterers, the focus here should be placed on the interpretation of Clause 15 and how this may be used to assist owners in their dealings with charterers.

It is notable that the Court of Appeal judgment was passed on 23 October 2013, that is, only a few days before the NYPE form’s 100^th anniversary (6.11.1913- 6.11.2013). Clause 15 is one of the printed clauses on the NYPE form and has therefore been drafted in the original 1913 NYPE form.

As Mr Lord Justice Tomlinson put it in his introduction to the Court of Appeal judgment, the question to be answered by the Court of Appeal here was: “What is it meant by the trilogy of expressions used in Clause 15, “the loss of time”, “the time thereby lost” and “the time so lost”? Is it the time lost in relation to the service immediately required of the vessel during the period when full working of the vessel was prevented [or]…… as the net loss of time of the chartered service which was here none […..]?”.

1. The Facts

On 13 January 2009, MINERVA ΝAVIGATION INC. (hereafter referred to as “the Owners”) chartered their vessel MV ATHENA (hereafter referred to as “the Vessel”) on a time charterparty on the NYPE 1946 form as amended for a period of 3-6 months to OCEANA SHIPPING AG (“Oceana”).  The period was subsequently extended and OCEANA sub-chartered the Vessel on a time charterparty (in materially identical terms) to sub-charterers TRANSATLANTICA COMMODITIES S.A. (“Transatlantica”) for one time charter trip with redelivery at Syria or in the Egyptian Mediterranean in Charterers’ option. Oceana and Transatlantica will be collectively referred to as “the Charterers”.

Clause 15 in both the head charterparty and the sub-charterparty was identical and read as follows:

“That in the event of the loss of time, from deficiency, sickness, strike or default of master, officers or crew or deficiency of stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, dry docking for the purpose of examination or painting bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost; unless caused by the Charterers or Charterers Agents or Charterers servants and all extra expenses directly incurred including bunkers consumed during period of suspended hire shall be for Owners account and if upon the voyage the speed is reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost and the cost of any extra fuel consumed in consequence thereof, and all extra expenses shall be deducted from the hire”. [The amendments to Clause 15 are shown in bold]

On 24 October 2009, the vessel completed loading a cargo of milling wheat at Novorossiysk for carriage to and delivery at one of two ports in Syria (at Charterers’ option). The Syrian authorities analysed the cargo upon its arrival and found that it was contaminated and thus could not be discharged.  The cargo was subsequently ordered to be discharged in Yemen or Libya (in Charterers’ option). It is to be noted that the Vessel was to be redelivered to the Owners in either Yemen or Libya upon completion of discharge.

On 15 January 2010, the Charterers instructed the Master to proceed to Libya (at the port of Benghazi) to discharge the cargo. Thereafter, the Owners instructed the Master to proceed to international waters just outside Libya and wait for further instructions. On 19 January 2010, the Charterers’ orders were specifically as follows: “Upon arrival, please anchor at road port Benghazi and waiting our further instructions”. However, the master did not follow these express orders and he proceeded as instructed by the Owners –at 23.38 on 19 January 2010, the Master stopped the Vessel in international waters outside Libya and drifted.

On 20 January 2010, the Charterers sent an off-hire notice to the Owners stating that the Vessel would remain off-hire until she departed from the drifting position and proceeded to Benghazi. Despite Charterers’ orders, the Vessel continued to drift in international waters for 10.9416 days. At 22:14 on 30 January 2010, she resumed her voyage to Benghazi where she waited in port and thereafter discharged her cargo.

2. The Decisions

The dispute was whether the Vessel remained on hire during the drifting period in international waters off the port of Benghazi.

The Arbitration Tribunal (consisting of 3 Arbitrators) unanimously ruled that the Vessel was off hire during the drifting period of 10.9416 days. The Tribunal decided that Clause 15 was triggered by the Master’s default in not following the express orders of the Charterers on 19 January 2010, which in turn meant that the Vessel was not available for the service immediately required of her and this resulted in an immediate loss of time. In the words of their decision: “…the off-hire clause operates entirely independently of any breach of contract by the Owners [under Clause 8 of the NYPE for example] and a claim under the off-hire clause may lead to a different answer than would ensue in the case of a claim for damages for breach of contract”.

The Tribunal held that the Charterers’ orders were valid and that the Owners should have complied with them. It was irrelevant that time was spent in issuing new bills of lading in order for the cargo to be discharged in Libya. It was also irrelevant that there was in effect no actual loss of time overall, because even if the Vessel had proceeded directly to Benghazi on 19 January 2010, she would not have berthed any earlier than she actually did, because the issues with the new bills of lading did not allow discharge of the cargo to be carried out any earlier than it actually was.

The Tribunal’s therefore based its decision on the fact that the Master did not follow the Charterers’ express orders and his failure to proceed directly to Benghazi resulted in a loss of time equal to her delayed arrival at that port, irrespective of what would have happened if the Vessel had arrived at that port earlier (i.e. when instructed to do so). In their words: “…whether the same time would have been lost for other reasons had she proceeded directly to Benghazi is irrelevant for a claim under the off-hire clause”. This is because the time was lost in relation to the service immediately required of the Vessel by the Charterers, which was to sail to Benghazi. The Arbitration Tribunal followed the Court of Appeal decision in The Berge Sund [1993] 2 Lloyd’s Rep 453 in reaching its decision.

The High Court overruled the Arbitration decision and held that the Vessel was on hire during the drifting period. Walker J. disagreed with the Arbitration Tribunal in that one has to look at the charterparty service as a whole and not simply the drifting period (which was the result of not following Charterers’ orders). He considered that since the Charterers had not lost any time overall (irrespective of the delay during the drifting period) they had no right to put the Vessel off hire. Therefore walker J. decided that under the circumstances there was no “net loss of hire to the chartered service” and the Vessel remained on hire at all times.

The Charterers appealed to the Court of Appeal.

The Court of Appeal agreed with the Arbitration Tribunal’s reasoning and decision and overturned the High Court decision, thus allowing the Charterers’ appeal and ruling that the Vessel was off-hire for the total drifting period of 10.9416 days. Tomlinson LJ gave a judgment that focuses on basic principles and relies on the decision of the same Court in 1993 in The Berge Sund (mentioned above). The Court of Appeal was unanimous in its decision. This result now forms the basis for the interpretation of Clause 15 of the NYPE charterparty under English law. The principles are set out below.

3. The ATHENA principles for the interpretation of Clause 15 NYPE

• The off hire clause is triggered by a cause preventing the full working of the vessel. “It is axiomatic that the full working of the Vessel refers to her ability to do that which she is immediately required to do”. (par.21 of the CA Judgment).
• The triggering words of Clause 15 are “loss of time”. In the words of Tomlinson LJ at par.23: “What the hirer of the ship is guarding himself by this contract with the owner of the ship, is that he is not to pay during such period of time as he shall lose (that is, lose time) in the use of the ship, by reason of any of the contingencies which this particular clause contemplates”. Therefore if there is no loss of time in the efficient use of the vessel to perform the service immediately required of her, then the vessel shall remain on hire.
• The key is to establish the service immediately required of the vessel. In the words of Tomlinson LJ: “…an off-hire clause in the terms which we have here to consider is concerned with the service immediately required of the vessel and not with the “chartered service” as a whole or the entire maritime adventure or adventures which may be undertaken in the course of the chartered service[……]. The question is then what time has been lost during that period”. (par.24).
• In establishing the service immediately required of the vessel, owners have to be clear as to what the charterers require the vessel to do at any given point in time. Tomlinson LJ (at par.26) relied upon The Berge Sand (which was a case concerning the cleaning of the vessel’s holds and the time allegedly “lost” thereof, whereby it was decided that the vessel remained on hire throughout that period) and stated the following: “It is, as Aristotle said, probable that many improbable things will happen. The question is not what the charterers hoped or expected their orders would be, but what they actually required”.
• There has to be a clear loss of time as a result of the triggering event. In paragraph 27, Tomlinson LJ explained this in the following words: “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. The clause is concerned to identify an actual period of real time during which time is being lost, not an identifiable length of time by which “the chartered service” or what the judge sometimes called “the charter service overall” can be said to have been delayed”.
• The Court of Appeal concluded that Clause 15 is a “net loss of time” off-hire clause meaning that the vessel can only be put off-hire for the particular duration that the triggering event deprives the charterers of the full working of the vessel immediately required of her. In the words of Tomlinson LJ at par.32: “The clause contemplates the happening of a certain event which has the effect of preventing the full working of the vessel in the performance of the service immediately required of her. If such an event occurs, “the payment of hire shall cease for the time thereby lost”. The clause therefore contemplates a cesser of the payment of hire during the period when “the full working of the vessel” is so prevented but only to the extent that time is thereby lost”.

4. Conclusion

The Court of Appeal in The Athena sought to simplify as well as codify the rules which apply in the interpretation of one of the most commonly used clauses in the NYPE Charterparty. These rules provide the guidelines under English law for determining whether a vessel is off hire under any particular set of circumstances. Although one may argue that these principles are arbitrary, they nevertheless provide sufficient guidance and assistance in the fair resolution of off-hire disputes.

We hope that you have found the above analysis useful. A full reading of the Court of Appeal judgment in The Athena, may be found here. (PDF)

Maria Stavropoulou

Solicitor (England & Wales), Greek Lawyer (Athens Bar Association)