Liability for Underperformance caused by fouling due to Charterers’ orders

Imperator I Maritime Company v. Bunge SA (Coral Seas) [2016] EWHC 1506 (Comm)

The background facts

The Coral Seas, a new building vessel, was chartered on an amended NYPE 1946 form to Bunge S.A., who in turn sub-chartered it to C Transport Panamax.

The charterparty included the standard clause 8 obligation that “The captain… shall be under the orders and directions of the charterers as regards employment and agency…”.

Rider clause 29(a) set out the vessel’s speed and fuel consumption warranties: “Speed/consumption (expected as a new building) … All details given in good faith as per shipbuilders’ plans and as a new building vessel can be described…”.

Rider clause 29(b) additionally stated: “Throughout the currency of this charter, owners warrant that the vessel shall be capable of maintaining and shall maintain on all sea passages, from sea buoy to sea buoy, an average speed and consumption as stipulated in clause 29(a) above, under fair weather condition not exceeding Beaufort force four and Douglas sea state three and not against adverse current.”

There was no suggestion that the vessel did not meet her performance warranties at the start of the charter. Over one year into the charter, the Charterers ordered the vessel to proceed to Guaiba Island, Brazil. The vessel remained there for one month in the Brazilian summer, waiting to load. On departure, it was immediately clear that the vessel’s performance had significantly worsened. The Charterers deducted US$ 389,379.51 from hire for underperformance, claiming that the Owners had breached their clause 29(b) ongoing performance warranty.

The Tribunal’s decision 

The arbitrators found that: (1) after departing from Guaiba Island, the vessel did not meet its warranted speed, leading to a loss of 90.345 hours; (2) the reason for this was the lengthy stay in Brazil, which had caused marine growth to foul the vessel’s hull; (3) this marine growth was not unusual but constituted fair wear and tear in the ordinary course of trading; and (4) the Owners had not breached their maintenance obligation under clause 1 in not cleaning the hull prior to departing from Guaiba Island.

However, the arbitrators found for the Charterers, holding that clause 29(b) was an ongoing warranty which applied to all sea voyages, including those after a prolonged stay in tropical waters, and that the Owners had assumed the risk that the vessel’s performance would be reduced in such circumstances.

The Commercial Court decision 

The Owners appealed to the Court, arguing that clause 29(b) should be construed on the basis of the vessel continuing to have a clean hull and propeller, and that, as stated in Time Charters (citing the obiter/non-binding statement by Colman J in The Pamphilos), “Where the owners give a continuing undertaking as to performance of the ship, and the ship has in fact underperformed, it is a defence for the owners to prove that the underperformance resulted from their compliance with the charterers’ orders”.

The Court held that:

1.  The performance warranty in clause 29(b) was to apply to all sea voyages, regardless of whether there was hull fouling.
2.  Furthermore, the fouling was an ordinary peril of the voyage (being neither unusual nor unexpected), the risk of which the Owners must have agreed to bear, consistent with which the Owners had conceded that the implied indemnity (for following the Charterers’ lawful employment orders under clause 8) was inapplicable here. Indeed, if the fouling at Guaiba Island had been unusual or extraordinary, then the Owners could have claimed under the implied indemnity.
3.  Moreover, clause 29(b) restricted the application of the performance warranty to passages under “fair weather” conditions, but the parties had not also excluded the warranty in respect of voyages after prolonged stays in port (as charter party rider clauses often do).

On this basis, the Court dismissed the Owners’ appeal, disagreeing with the statements in Time Charters and The Pamphilos. In the Court’s view, the Owners were seeking to rely on a limitation in clause 29(b) that simply was not there – its language was clear and unambiguous.

Comment 

Ship owners and ship operators may be surprised by this decision.

Firstly, the fact that the Owners had warranted the performance by reference to ‘fair weather’ seems irrelevant. This is just the contractual “yardstick” (standard) by reference to which the vessel’s performance is measured. The fact that clause 29(a) referred to that performance standard as what was “expected as a new building” and which was “given in good faith as per shipbuilders’ plans and as a new building vessel can be described” suggests that the performance warranty was given on the basis of a new (clean) hull/propeller.  However, the clause did not expressly say so (which would appear to have been the problem in this case).

Secondly, the Owners’ concession that they had no implied indemnity claim also seems irrelevant. The implied indemnity cannot contradict an express charter party clause. So the Owners either succeeded or failed on clause 29’s wording, with which the implied indemnity had to be consistent. The Owners could only have assumed responsibility for underperformance due to fouling because of clause 29(b). The Court’s apparent assumption that the Owners had assumed this risk elsewhere seems questionable – as the Court noted, in The Kitsa the Tribunal (by whose findings the Court was bound in that case) had only held that the Owners had assumed responsibility for the cleaning cost following fouling (defeating their implied indemnity claim for that cost), not for the actual underperformance.

At any rate, this decision makes it clear that an ongoing performance warranty will be read strictly. If an owner wishes to avoid this result, such a warranty should be avoided (NYPE charter parties already have a regime that deals with underperformance during a time charter) and/or should include a prolonged stay clause which caters adequately for this situation.

Source: InceLaw