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2 July 2020
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Sea Views

Issue 4 - Spring 2010

TAKING THE MYSTERY OUT OF VESSEL PERFORMANCE CLAIMS

Introduction
Review the charterparty terms
"Without guarantee"
Is there a "continuous warranty"
If there is an applicable performance warranty, when does it apply?
What about "about"?
What does the charterparty say about weather conditions?
Basic method of performance calculation
Off-hire
Summary

Introduction

The scenario is not uncommon. A charterer receives a report from his appointed weather routing company which suggests that the chartered vessel has under performed. On the basis of that report alone, the charterer makes a deduction from hire. The ship owner refutes the charterer's allegations. Both the charterer and the ship owner inform their respective defence clubs - a potentially time consuming and expensive dispute lies ahead.

We handle many such vessel performance disputes. While some, inevitably, require detailed legal and technical input, others may be resolved quickly and inexpensively.

The purpose of this note is to take some of the mystery out of vessel performance claims by highlighting a number of pertinent points which you might like to address at the first sign of a dispute so that time and money might be saved. Correctly presented claims often result in quick amicable settlements. It is when one party does not apply the accepted rules that disputes tend to escalate.

Review the charterparty terms

Very often, in our experience, the analysis of the charterer's weather routing company does not adhere strictly to the terms of the charterparty. Therefore, resist the temptation to refer the charterer's evidence immediately to an expert for a detailed critique of the vessel's performance. Such expert input might very well be required later, but first obtain a copy of the charterparty and review its terms - after all, it is the charterparty, not a weather routing company report, which sets out precisely what the parties have agreed as regards the vessel and her performance.

"Without guarantee"

Many time charterparties include, in the vessel's description, details of the vessel's speed and bunker consumption, but sometimes all those details, including the speed and consumption information, are stated as being given "without guarantee". A provision qualified as being "without guarantee" is no contractual warranty at all.

Is there a "continuous warranty"

Unless there is a specific provision in the contract indicating that the performance warranty is to apply, eg "throughout the period of this charterparty", ie a so-called "continuous warranty", the warranty would be deemed to apply only as at the vessel's delivery into the charter. In such circumstances, evidence of vessel under performance during a voyage would not justify a deduction from hire - the charterer would have to demonstrate that the vessel, on her delivery, was not capable of so performing.

If there is an applicable performance warranty, when does it apply?

If a performance warranty in the charterparty makes no mention of weather or sea conditions, it is likely that the warranty would be deemed to apply to all weather conditions.

If, on the other hand, a performance warranty is stated in the charterparty to apply only in periods of good weather, check that the charterparty definition of "good weather" has been adhered to. It is not uncommon, in our experience, for vessel performance calculations to have been based on a misapplication of the charterparty good weather definition, thus distorting the overall result.

Good weather conditions are generally defined by reference to wind speeds, eg "not exceeding Beaufort 4", and also the roughness of the sea for navigation, eg "Douglas Sea State 3". A good weather warranty is precisely that, ie a warranty that the vessel would perform as described in good weather, as defined in the charterparty.

A word about currents. Even with the most up to date routing charts, large fluctuations in the strength and direction of any current may occur. Thus, the issue of currents is a controversial one and there is no hard and fast rule about whether the effect of currents is to be taken into account in the assessment of the vessel's performance. The starting point should be the charterparty to ascertain if the parties have made any specific provision for currents.

Although, strictly speaking, "adverse currents" are not "weather", it is not unusual to find a reference to "no adverse currents" in the charterparty definition of "good weather", in which case the performance warranty would have to be so interpreted, ie the vessel would not be expected to perform as warranted during periods where the vessel encountered adverse currents.

What about "about"?

It is usual for an allowance to be made to account for the parties' inclusion of the word "about" in relation to either the vessel's warranted speed or warranted bunker consumption. While the English Court of Appeal has held that the particular allowance for the use of the word "about" must be tailored to the vessel's configuration, size, draft and trim etc, and while there is no hard and fast rule on this issue, it is generally accepted in London arbitrations that an allowance of half a knot is applied in relation to speed and up to 5% in relation to fuel consumption.

So, by way of example, if a speed warranty provides for the vessel to be capable of steaming at "about 13.5 knots in good weather", then if she is shown to be capable of 13 knots in good weather conditions, there would likely be no breach of the speed warranty. Similarly, if a consumption warranty states a daily consumption in good weather of "about 30 mt ", then the warranty would likely not be breached if the daily consumption turned out to be 31.5 mt, ie 30 mt plus 5%.

It is not unusual for a vessel's performance warranty in a charterparty to include the word "about" twice, ie both in relation to the vessel's warranted speed and also in relation to her warranted bunker consumption. This raises the interesting and often controversial question of whether a ship owner should receive two allowances, one in relation to speed and a second allowance in relation to bunker consumption.

Some London arbitrators do allow two allowances, one for speed and a second allowance for bunker consumption - after all, that is what the parties agreed by including the word "about" twice in the performance warranty in the charterparty, ie in relation to both speed and bunker consumption.

Other arbitrators adopt a different approach. If there is an allowance of half a knot being applied to the vessel's speed, the ship owner, arguably, would already be receiving an allowance on bunker consumption simply by virtue of the allowance on speed, ie if the vessel is already steaming slower, she would ordinarily be consuming less fuel.

Again, there is no hard and fast rule regarding the application of two allowances - each case has to be considered individually.

What does the charterparty say about weather conditions?

A charterer will generally base his performance claim on a report prepared by his appointed weather routing company. Such companies generally use weather data from their own sources and make their own vessel performance calculations based on that data.

But unless the charterparty clearly states that the weather routing company report is to be binding on the parties, London arbitrators, in our experience, would assess the vessel's performance by reference to all the available evidence, ie including the vessel's log books. A deduction from hire by a charterer based only on that charterer's appointed weather routing company report might very well be unjustified.

Even if there is a charterparty provision that the weather routing company report is "binding", check carefully to ascertain precisely what the parties have agreed would be binding. For example, have the parties agreed to be bound by the conclusions of the weather routing company, ie the vessel performance calculations, or is it merely the weather routing company's weather data which is binding? A subtle difference, but one which can affect the claim considerably.

Basic method of performance calculation

Many weather routing company reports assess the vessel's performance in all weather conditions and then apply a "weather factor" (and sometimes also a "current factor") to convert the all weather performance to what the weather routing company concludes to be the vessel's good weather performance. While such reports might be useful in providing a rough indication of how the vessel has performed, they are not in accordance with the approach generally followed in London arbitrations.

The correct approach to assessing the vessel's performance, and the one which is generally adopted in London arbitrations, is suggested below. There are variations on the method of calculation, depending on the particular facts of each case, but all follow the same basic principle that it is the vessel's performance in "good weather" which must first be assessed:

1. By reference to the weather data indicated in the charterparty, extract the periods of good weather (as defined in the charterparty) and assess the vessel's performance during those good weather periods.

2. If, after having applied the relevant allowances, eg for currents, "about" etc, the vessel is shown to have performed as per her warranted capability during these good weather periods, there would be no breach of the performance warranty on which the charterer could base a claim for under performance, whatever might have been the vessel's performance during the periods of non good weather.

3. It is only if the vessel is shown not to have performed as per her warranted capability during the periods of good weather that the periods of non-good weather would be taken into account. It is assumed that if the vessel under performed in good weather, she must also have under performed in bad weather.

4. In addition to a claim for excess time through poor speed, the charterer might also have a claim for over consumption of bunkers. However, it is often the case that a reduction in the vessel's speed results in an under consumption of fuel. The saving of fuel may, in some cases, be off set against a claim for loss of speed.

Off-hire

Some charterparties, eg the NYPE form, contain specific off-hire provisions in relation to reduced vessel performance. A dispute which often arises is whether a vessel's poor performance may be due to a specific defect in the vessel's hull or machinery so as to bring the charterer within those off-hire provisions and thus justify a deduction from hire. As with deductions from hire generally, the burden would be upon the charterer to bring himself within the relevant off-hire provision to justify a deduction for under performance.

The evidence might initially point to the poor performance being the result of problems with the vessel's engine, thus suggesting a valid deduction from hire by the charterer, but a ship owner should not overlook the possibility that such engine problems might be due to poor quality fuel supplied to the vessel by that charterer.

A word about bottom fouling. The growth of weeds and barnacles on the underwater surfaces of a vessel's hull is a common occurrence for vessels which trade in tropical waters. Such hull fouling can have a dramatic effect on a vessel's performance, but how does such bottom fouling impact on vessel performance claims? While it is true that a ship owner does have on-going vessel maintenance obligations, it is not always the case that such bottom fouling is the responsibility of the ship owner. Nor is it always the case that a fouled hull will constitute a "defect" in the vessel's hull in order to justify an off-hire deduction by the charterer - a distinction is sometimes drawn between a vessel whose hull is fouled on the vessel's delivery into the charter and bottom fouling which occurs during the charter period. Each case must be considered individually.

Summary

This note has outlined a number of bullet points which you might consider at the first signs of a vessel performance dispute. If, after having considered these bullet points, the performance dispute proves incapable of amicable resolution, further legal advice should be sought.

Naturally, the limited space available for this note does not allow a detailed consideration of all the issues which may arise. If you would like further information on any issue which has been raised in this note, or on any performance related matter, please do not hesitate to contact us.

 

 

 

The contents of this bulletin are not intended to be a substitute for legal advice on any of the specific issues discussed in it.

 
   

Laurence Marron Solicitors, 68 Lombard Street, London EC3V 9LJ    
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