37
Shelltime
Shelltime
37.1
This chapter is intended mainly as a guide to cases decided by the English courts on this form and on other tanker time charter forms. Tanker charter cases have therefore been covered in detail even where they have already been dealt with in the earlier chapters of the book. The chapter takes the Shelltime 4 form as its framework. The Shelltime 4 form was issued in December 1984. It was revised in December 2003 so as to reside on BIMCO’s on-line document service “idea”, which hosts a variety of non-BIMCO documents as well as BIMCO’s own published forms. Shelltime 4 (2003 revision) thus now resides on “idea” as “the first ‘living’ time charterparty” (per Grant Hunter, Head of Documentary Department, BIMCO, writing in Legal Issues Relating to Time Charterparties, Informa (2008), paragraph ). This apparently allows Shell to update the form from time to time. Any such updating may result in a new “version number” for the document, “depending on its significance”. It is not difficult to envisage how this could result in problems, and no doubt broking practice must take careful account of the possibility for error or confusion, although we understand that in fact Shell has not updated the form since April 2006. For complete clarity here, this chapter takes as its text Shelltime 4 (2003 revision, version 1.1 Apr 06), as published on “idea” on 1 April 2014, and that is the version reproduced at F4 in the Forms section at the end of this book.
“SHELLTIME 4”
Issued December 1984 amended December 2003, Version 1.1 Apr 06
37.2
Questions arising in connection with the formation of the contract and with the parties to the contract are dealt with earlier in this book in and 2, respectively.
37.3 Clause 1 – Description and Condition of Vessel; Safety Management
Obligations upon delivery
37.4
Clauses 1(a) to (g) of Shelltime 4, to the extent that they contain undertakings as to the state and condition of the ship at the time of delivery, and Clause 1(h), to the extent it requires that the ship shall comply with the details set out in the attached Vessel Questionnaire, all form part of the description of the ship. Also forming part of the description are the name of the ship (or in the case of a newbuilding, the yard and yard number: see The Diana Prosperity ) to be inserted in Line 3, as well as the stipulations as to personnel contained in Clause 2(a). If a ship is misdescribed and the misdescription is discovered by the charterers before or upon delivery, the question whether delivery may be refused or whether the charterers must accept delivery and claim damages depends in part on which element of the description is inaccurate and in part on the seriousness of the misdescription. This question is dealt with at to , et seq. and et seq., above.
37.5
The stipulations in Clause 1 (and Clause 2(a)), to the extent they contain undertakings applicable at the date of delivery, impose absolute obligations (see paragraph G.1, below), so that it is irrelevant to any question of compliance or breach whether due diligence was exercised or not: see The Fina Samco , per Colman, J., at page 158, the facts of which are set out under Clause 3 below, and The Trade Nomad , (C.A.); and see generally on description of the ship , above. But in regard to claims arising out of “any loss of or damage to or in connection with cargo”, if they are subject to the Hague or Hague-Visby Rules pursuant to Clause 27(c)(ii), the effect of Article IV, rule 1 of the Rules will be to reduce the obligation of seaworthiness from an absolute obligation to an obligation to exercise due diligence to make the ship seaworthy. If, under Clause 27(c)(ii), such claims are subject to the Hamburg Rules, then the owners will not be liable if they show, under Article 5(1) that they, their servants and agents took all measures that could reasonably be required to avoid the occurrence and its consequences. (Clause 27 is quoted at paragraph , below, and Clause 27(c)(ii) is discussed in and .)
37.6
The general requirement in Clause 1(c) that the ship shall be “tight, staunch, strong… and in every way fit for the service…” constitutes an express undertaking of seaworthiness. This has been so held in the case of the New York Produce charter in which the wording is almost identical save that the word “fitted” is used instead of “fit”, a distinction which is not thought to be material. In The Derby , at page 641, Hobhouse, J., whose decision was upheld by the Court of Appeal at , in considering the words “tight, staunch, strong and in every way fitted for the service” in Line 22 of the New York Produce form, said: “When one is concerned, as here, with a charter-party which is going to run for a considerable period of time and gives to the charterer very wide options as to the orders he may give to the owners, questions arise as to the extent to which the owners are required, at the time of delivery, to anticipate and provide in advance for every contingency… With regard to ‘fitness for the service’, as used in the NYPE form, the fitness must be fairly generally construed as otherwise one may be laying the owners open to having to fulfil conflicting and inconsistent obligations depending on which contingency is taken into account. So, while I do not accept owners’ argument that to be unfit the vessel must be foredoomed to being unable properly to carry out the charter-party obligations… I do not accept either charterers’ argument that any subsequent delay or any necessity to make some alteration to the vessel or its equipment, etc., automatically shows an initial lack of fitness.”
37.7
Such considerations will be most relevant to matters not specifically dealt with in Clause 1 of the Shelltime 4 and, by contrast, less relevant in general to those matters which are specifically dealt with as, for example, under Clause 1(d), (e) and (h). But in the case of a wide-ranging undertaking, such as that in Clause 1(g), that at the date of delivery the ship “shall have on board all certificates, documents and equipment required from time to time by any applicable law to enable her to perform the charter service without delay”, questions may well arise as to the extent to which the owners are required to anticipate every contingency. For authorities on fitness and on documents required to be on board to comply with this obligation, see et seq., above. In The Elli and The Frixos (C.A.), Clause 1(g) of the original Shelltime 4 form was held to be a continuing promise, applicable throughout the charter, although Clause 1 was then introduced only by the words “At the date of delivery under this charter” (contrast et seq., below). That reading of Clause 1(g) seems, with respect, doubtful. It is thought the better reading was that ‘required from time to time’ in Clause 1(g) described the character of the documents promised by Clause 1(g), rather than the time at which they were promised.
37.8
Questions of fitness are prima facie questions of fact. A deficiency in equipment which has no effect on the safety of the ship, her efficient operation, or the security or integrity of her cargo, and is of no real commercial significance, may not make the ship unfit for the service even though, by reason of the deficiency, the equipment in question does not comply with the requirements of the charter.
The
Arianna was time chartered for a period of 10 years on the Essotime form for worldwide trading. The charter provided by Clause 3: “… hire to commence when written notice from the Master has been given to the Charterer… that the Vessel is at its disposal… the Vessel being then ready with holds and cargo tanks, pipes and pumps clear and clean to Charterer’s Inspector’s satisfaction and in every way fitted for the service and the carriage of [general products], and being on delivery tight, staunch and strong and with pipe lines, pumps and heater coils in good working condition, so far as the same can be attained by the exercise of due diligence…”. The charter further provided by an additional Clause 69: “Owner to at all times maintain tank cleaning system in good order such that 6 machines can run simultaneously, at seawater temperature of 180´F at 170 PSI pressure.”
When the ship was tendered for delivery, the charterers declined to accept her on the ground that her tank-cleaning system did not comply with the requirements of the charter. Arbitrators found that while the vessel’s six tank-cleaning machines could run simultaneously at the temperature and pressure required by Clause 69, that clause, properly construed, required that the six machines should be capable of running simultaneously while the ship was in port and was at the same time heating cargo destined for other ports and this the ship could not achieve. The arbitrators found further that the pattern of trading under the charter might have been such that this situation would never have arisen and, even if it did, the ship could always run four cleaning machines simultaneously; the only consequence of the deficiency would have been some minor delay. The arbitrators held that, despite the breach of Clause 69, the ship was nevertheless ‘in every way fitted for the service’ and the charterers’ refusal to take delivery was unjustified.
On appeal, it was argued on behalf of the charterers that in the light of the deficiency in the tank-cleaning system, the ship could not as a matter of law be “fitted for the service”. In rejecting this submission Webster, J., held that the question of fitness was primarily one of fact. Whether the ship was fit or not depended upon the significance of the defect and it was implicit in the arbitrators’ award that they regarded the deficiency in this case as of no real significance in a commercial sense.
The Arianna .
“and throughout the charter period”
37.11
These words appear in Line 6, introducing Clause 1, and also in Line 45, introducing Clause 2(a). They were not in the original Shelltime 4. The question arises whether they render Clauses 1(a) to 1(h) not only absolute undertakings applicable at the date of delivery, but also absolute, continuing undertakings that the ship will always possess all of those attributes in full, no matter what happens during the charter. It is thought that cannot be the correct reading. It would involve the owners in an extravagant promise and is contradicted by Clause 3(a), by which the owners undertake only an obligation to exercise due diligence to maintain or restore the ship (see et seq., below).
37.12
The better reading of Line 6, it is suggested, is that “throughout the charter period” applies only to Clause 1, items (i) to (m), which were added to the standard form at the same time, and each of which is by nature a promise by the owners as to how the ship will be operated during the charter rather than a promise that a particular state of affairs will exist at the moment of delivery (on which, in respect of Clause 1(g), see paragraph , above). Reading “At the date of delivery” in Line 6 with Clause 1(a) to (h) and “throughout the charter period” with Clause 1(i) to (m) recognises and gives effect to that clear difference in the nature of those sets of items. Thus, the sense of Line 6, it is thought, is “At the date of delivery of the vessel under this charter and, in the case of (i) to (m) below, throughout the charter period”. It may seem remarkable that Clause 1 (and, by parity of reasoning, Clause 2(a)) should mix together provisions referable to the owners’ obligations on delivery and provisions as to what will be required during the charter period. However, that is something Shelltime 4 has always done. Clause 2 has always contained delivery obligations (Clause 2(a)) and ongoing obligations (Clause 2(b)) and Clause 3 has always mixed together matters of ongoing maintenance and repair (Clauses 3(a) and 3(c)) and a provision concerned only with breach of the owners’ delivery obligations (Clause 3(b)), all under the marginal title (in the circumstances a misleading one), “Duty to Maintain”.
37.13
The undertakings in Clauses 1(i) to (m) which, thus, apply “throughout the charter period”, require the owners to follow certain specific management and reporting systems and do not require particular elaboration. However, it should be noted that they will not apply directly so as to determine the owners’ liability arising out of any loss of or damage to or in connection with cargo. Any such claim, brought by the charterers or by any other person, will be subject to the Hague, Hague-Visby or Hamburg Rules pursuant to Clause 27(c)(ii). That said, if the owners have failed to comply with Clauses 1(i) to (m), that may have an impact on whether they can establish a defence to such a claim under the applicable Rules.
Oil major approvals
37.14
At Clause 43 (see paragraph , below) Shelltime 4 contains, as did the charter in The Seaflower (No. 2) below, an express right in the charterers to terminate the charter if the ship becomes unacceptable to “any Oil Major”. The identity of these dominant oil companies is discussed at paragraph .
37.15
Additional clauses describing the ship as having certain oil major approvals at the date of the charter may be construed as conditions entitling the charterers to treat the contract as discharged if the ship does not have the stated approvals at that time. Oil major approvals, like class, are matters of status rather than seaworthiness: see The Seaflower (No. 2) and The Rowan, below (in which Longmore, L.J., suggested at [16] in the Court of Appeal report that this aspect of the description of the ship at the outset will ‘normally’ be a condition). It has become common to incorporate clauses drawing on provisions of the SIRE tanker vetting system established by the Oil Companies International Maritime Forum (OCIMF); see, for example, The Savina Caylyn , in which express provision was made as to the circumstances in which difficulties with vetting approvals were to entitle the charterers to terminate the charter (in that case, three consecutive oil major vetting failures). It should also be noted that oil majors have not for some years now issued (as such) standing approvals of vetted ships and references to oil major approvals may need to be construed accordingly as connoting ‘SIRE inspected/vetted and not disapproved’ (see The Rowan and (C.A.)).
37.16
A clause by which the owners undertake to obtain a particular oil major approval within a certain time may also be construed as a condition, if the necessary implication from the contract as a whole is that it was the parties’ intention to give the charterers a right to cancel if the approval was not obtained within the period.
The
Seaflower was chartered on the Shelltime form for a period of 11 to 12 months. An additional “Majors Approval Clause” stated that the ship had Mobil, Conoco, BP and Shell approvals, and went on:
“… Owners guarantee to obtain within 60 (sixty) days Exxon approval in addition to present approvals. On delivery date hire rate will be discounted USD250 (two hundred and fifty) for each approval missing, ie Mobil, Conoco, BP, Shell, Exxon.
If for any reason during the time-charter period, Owners would loose [sic] even one of such acceptances they must advise Charterers at once and they must reinstate the same within 30 (thirty) days from such occurrence failing which Charterers will be at liberty to cancel charterparty or to maintain same at reduced rate as stipulated above.”
The owners failed to obtain the Exxon approval within 60 days and the charterers cancelled. The owners contended that a right of cancellation arose only if the owners lost an approval during the period of the time charter and failed to reinstate it within 30 days.
It was held by the Court of Appeal, reversing Aikens, J., that the obligation to obtain the Exxon approval within 60 days was a condition, breach of which entitled the charterers to treat the contract as at an end. If that provision was not so classified, it lost nearly all its effect and gave rise to uncertainty; there was no commercial or other reason for treating a failure to obtain the Exxon approval differently from a failure to renew the other approvals and the word ‘guarantee’ emphasised the importance attached to the term, even though on its own the word would have been insufficient to support a conclusion that the term was a condition of the contract.
The Seaflower (No. 2) (C.A.).
(See also the report at
on the charterers’ alternative claim on the footing that the above term was not a condition but an intermediate term only.)
37.17 Clause 2 – Shipboard Personnel and their Duties
Obligations upon delivery
37.18
The detailed requirements in Clause 2(a)(i) to (iv) as to the adequacy, competence and efficiency of the crew at the date of delivery, which are also part of the description of the ship, are again absolute in nature: see under Clause 1, above. Clause 2(a)(i) is equivalent to the undertaking of seaworthiness at the time of delivery that is implied at common law, insofar as it relates to the ship’s crew: see paragraph , above.
“and throughout the charter period”
37.19
As in Line 6 introducing Clause 1, see et seq., above, it is thought these words in Line 45 do not convert the requirements of Clause 2(a)(i) to (iv) into continuing, absolute promises, contradicting Clause 3(a), but rather apply only to the promises in Clause 2(a)(v) and (vi) which were added to Shelltime 4 at the same time. Those promises are that the ship’s officers and crew will always be employed on terms acceptable to the ITF, that the ship will always carry an ITF Blue Card, and that the nationality of the ship’s officers given in the Vessel Questionnaire referred to in Clause 1(h) will not change during the charter except with the charterers’ prior agreement. In other words, Line 45 is to be read as “At the date of delivery of the vessel under this charter and, in the case of (v) and (vi) below, throughout the charter period:”.
37.20
Like the promises in Clause 2(a)(v) and (vi), the ‘guarantee’ in Clause 2(b) is not concerned with the state of affairs at the date of delivery, but with the duties of the ship’s officers and crew throughout the charter service. It is submitted that the use of the word “guarantee” in Clause 2(b) indicates only that the obligation is intended to be absolute and not that it should be construed as a condition rather than an intermediate term: for the significance of this distinction, see paragraphs G.2 and G.18, below. That said, in an early case under a tanker time charter, Pennsylvania Shipping v. Cie Nationale de Navigation (1936) 55 Ll.L.Rep. 271 (the facts of which are set out at paragraph , above), it was held the use of the word “guaranteed” in relation to the diameter of the ship’s cargo lines and the position of heating coils gave the term the status of a condition.
37.21
For comments on the obligations to prosecute all voyages with the utmost despatch and render all customary assistance, see , above.
37.22 Clause 3 – Duty to Maintain
| 3. |
(a) Throughout the charter service Owners shall, whenever the passage of time, wear and |
|
| |
tear or |
75 |
| |
any event (whether or not coming within Clause 27 hereof) requires steps to be taken to |
76 |
| |
maintain or restore the conditions stipulated in Clauses 1 and 2(a), exercise due diligence so to |
77 |
| |
maintain or restore the vessel. |
78 |
| |
(b) If at any time whilst the vessel is on hire under this charter the vessel fails to comply with the |
79 |
| |
requirements of Clauses 1, 2(a) or 10 then hire shall be reduced to the extent necessary to |
80 |
| |
indemnify Charterers for such failure. If and to the extent that such failure affects the time taken |
81 |
| |
by the vessel to perform any services under this charter, hire shall be reduced by an amount |
82 |
| |
equal to the value, calculated at the rate of hire, of the time so lost. |
83 |
| |
Any reduction of hire under this sub-Clause (b) shall be without prejudie to any other remedy |
84 |
| |
available to Charterers, but where such reduction of hire is in respect of time lost, such time |
85 |
| |
shall be excluded from any calculation under Clause 24.86 |
(c) If Owners are in breach of their obligations under Clause 3(a), Charterers may so notify Owners |
87 |
| |
in writing and if, after the expiry of 30 days following the receipt by Owners of any such notice, |
88 |
| |
Owners have failed to demonstrate to Charterers’ reasonable satisfaction the exercise of due |
89 |
| |
diligence as required in Clause 3(a), the vessel shall be off-hire, and no further hire payments |
90 |
| |
shall be due, until Owners have so demonstrated that they are exercising such due diligence. |
91 |
| |
(d) Owners shall advise Charterers immediately, in writing, should the vessel fail an inspection by, |
92 |
| |
but not limited to, a governmental and/or port state authority, and/or terminal and/or major |
93 |
| |
charterer of similar tonnage. Owners shall simultaneously advise Charterers of their proposed |
94 |
| |
course of action to remedy the defects which have caused the failure of such inspection. |
95 |
| |
(e) If, in Charterers reasonably held view: |
96 |
| |
(i) failure of an inspection, or, |
97 |
| |
any finding of an inspection, |
98 |
| |
referred to in Clause 3(d), prevents normal commercial operations then Charterers have the |
99 |
| |
option to place the vessel off-hire from the date and time that the vessel fails such inspection, or |
100 |
| |
becomes commercially inoperable, until the date and time that the vessel passes a re-inspection |
101 |
| |
by the same organisation, or becomes commercially operable, which shall be in a position no |
102 |
| |
less favourable to Charterers than at which she went off-hire |
103 |
| |
(f) Furthermore, at any time while the vessel is off-hire under this Clause 3 (with the exception of |
104 |
| |
Clause 3(e)(ii), Charterers have the option to terminate this charter by giving notice in writing |
105 |
| |
with effect from the date on which such notice of termination is received by Owners or from any |
106 |
| |
later date stated in such notice. This sub-Clause (f) is without prejudice to any rights of |
107 |
| |
Charterers or obligations of Owners under this charter or otherwise (including without limitation |
108 |
| |
Charterers’ rights under Clause 21 hereof). |
109 |
Sub-Clause (a)
37.23
Unlike the obligations under Clauses 1 and 2 of the Shelltime 4, the obligation to maintain under Clause 3(a) is not ‘absolute’. The owners’ obligation is only to exercise due diligence. The obligation to maintain under Clause 2 of the Shelltime 3 form was similarly limited to the exercise of due diligence. Whether, if other terms of the charter impose on the owners an obligation to carry out specific work, such obligations are absolute or limited to the exercise of due diligence, depends upon the construction of the charter as a whole.
The
Bridgestone Maru No. 3 was chartered for one year on the Shelltime 3 form, Clause 2 of which provided: “Owners shall, before and at the date of delivery of the vessel under this charter, exercise due diligence to make the vessel in every way fit to carry fully refrigerated Butane and/or Propane and… in every way fit for… service … Owners undertake that throughout the period of service under this charter they will … require steps to be taken to maintain the vessel as stipulated in clause 1 hereof… ” Clause 1,
inter alia, required the ship to be in class at the date of delivery. By an additional typewritten clause the charter further provided: “Owners agree at a subsequent date that booster pump(s) shall be fitted …”
The charterers contended that, on a proper construction of the charter, terms were to be implied imposing on the owners an ‘absolute’ obligation that the booster pump would be properly and carefully installed and that the approval of the ship’s classification society would be sought and obtained for that installation.
Hirst, J., in rejecting this contention, said at page 76: “In my judgment, business efficacy is fully met by the express obligation to exercise due diligence, and there is no necessity to superimpose more rigorous terms specifically applicable to the mode of installation and the class aspects of the booster pump. I therefore hold that the implied terms are not made good and that the defendants’ obligations in these respects are to be found in cl. 2, though I should add that I think that the due diligence obligation in relation to class can properly be construed as including an obligation to exercise due diligence to seek and obtain any requisite class approval for any given installation.”
The Bridgestone Maru No. 3 .
Sub-Clause (b)
37.29
The provisions in Clause 3(b) for reduction in hire apply to deficiencies in respect of the requirements of Clause 1(a) to (h) or Clause 2(a)(i) to (iv) existing at the time of delivery, but not to any such deficiencies which arise only after delivery: see The Fina Samco, below. The provisions of Clause 3(b) also apply to deficiencies constituting a breach of Clause 10 (space available to charterers) which occur at any time and, it is suggested, likewise to a failure at any time to comply with the ongoing requirements of Clause 1(i) to (m) or Clause 2(a)(v) or (vi).
The
Fina Samco was chartered on the original Shelltime 4 form. In the course of the charter she was ordered to discharge crude oil at two Japanese ports, Tomakomai and Nagoya. The ship arrived at Tomakomai on 21 October 1990 and commenced discharge at 0112 on 22 October. Between the time of commencing discharge and 0848 on 22 October, there was a total of 11 stoppages of discharge, ranging in length from 6 minutes to 36 minutes, due to boiler trouble. By 0830 the stoppages had amounted in aggregate to 3 hours 2 minutes. After 0848 the stoppage continued whilst attempts were made to diagnose the cause of the trouble. At 1115 on 22 October the berthing master ordered the ship to leave the berth due to deteriorating weather and sea conditions.
The arbitrator found that even if the boiler problem had not arisen, the berthing master would have ordered the ship off the berth at that time. The ship then lay off the berth unable to return because of the weather and sea conditions until 8 November. In the meantime, the cause of the trouble was identified and repairs were carried out. The arbitrator found that the defect had not existed at the time of delivery of the ship. The charterers claimed that the vessel was off hire from 22 October until 8 November (see paragraph
, below, for a discussion of the off-hire aspects of the case). In the alternative, the charterers relied on the indemnity provided by Clause 3(b), which was then Clause 3(ii) of the form, contending that there was loss of time caused by the failure of the ship to comply with the requirements of Clause 1 of the charter.
It was held by Colman, J., and the Court of Appeal, that Clause 3(ii), as it was then, applied only to loss suffered by the charterers from breaches of Clauses 1, 2(a) or 10 and thus to deficiencies in the Clauses 1 or 2(a) characteristics which existed at the time of delivery under the charter. It did not apply to such deficiencies arising after the date of delivery and therefore did not apply to the boiler defects which had caused the stoppages in the discharging operation. (Clauses 1 and 2(a) of the original Shelltime 4 form contained only delivery requirements and nothing equivalent to what is now Clause 1(a)(i) to (m) or Clause 2(a)(v) and (vi).)
The Fina Samco and
(C.A.).
Sub-Clause (c)
37.32
Clause 3(c) entitles the charterers to put the ship off hire if the owners have failed to exercise due diligence to restore full fitness, have been notified by the charterers of that failure and then fail within 30 days to demonstrate to the charterers’ reasonable satisfaction that due diligence is now being exercised. A notice under Clause 3(c) alleging a breach of the owners’ obligations under Clause 3(a) must identify in what way the owners are in breach, so that the nature of the charterers’ complaint is known. Tuckey, J., so held in Bocimar v. Anders Wilhelmsen (The Ensor, Permeke and Vesalius) (1993), unreported, affirming the decision of an arbitrator that it was necessary to imply such a term in Clause 3(iii), the equivalent of Clause 3(c) in the original Shelltime 4 form, in order to give the contract business efficacy. In that case, under a charter on the original Shelltime 4 form, the charterers had in the past communicated complaints to the owners regarding deficiencies in the hatch covers, which they alleged made the ships unfit to carry oil cargoes. Subsequently the charterers gave notices to the owners under Clause 3(iii), which referred to complaints, but did not specifically refer to the earlier complaints. It was held by the arbitrator that the notices were invalid and that consequently the ships were not put off hire under Clause 3(iii) and Tuckey, J., affirmed his decision.
Sub-Clauses (d) and (e)
37.33
In an age of ever-increasing vigilance as to the condition of the world tanker fleet, these provisions, which were not in the original Shelltime 4, grant the charterers important rights should external agencies or commercial parties find fault with the ship on inspection. The general scheme of the provisions is clear enough: the owners agree to notify the charterers at once if an inspection is failed, advising the charterers of their plan to set things right; if the charterers reasonably judge that their normal commercial operations are prevented, they may put the ship off hire. There are, however, two ambiguities in the drafting that could give rise to dispute.
37.34
First, Clause 3(d) applies if the ship fails “an inspection by, but not limited to” stated types of entity. The phrase “by, but not limited to” leaves it unclear whose inspections other than those of the stated types will trigger the owners’ obligations. Moreover, there could no doubt be costly and time-consuming argument over who is or is not a “major charterer” or over how wide is the net of “similar tonnage”. It is, perhaps, possible that Clause 3(e) will assist in construing these provisions, leading to a conclusion that all inspections failure of which is liable to render the ship “commercially inoperable”, and only such inspections, fall within Clause 3(d). It would, though, be more helpful if Clause 3(d) itself were clear. It has become common for additional clauses to be incorporated which refer, as does Clause 43, to “any Oil Major” (as to which see paragraph , below) and draw on the SIRE tanker inspection and vetting system established by the Oil Companies International Marine Forum (OCIMF); see, for example, The Savina Caylyn .
37.35
Second, Clause 3(e)(ii) entitles the charterers to put the ship off hire when “any finding of an inspection, referred to in Clause 3(d)” prevents normal commercial operation of the ship. It is unclear whether that is limited to inspections that have been failed. For example, a major charterer of similar tonnage might find on inspection defects in equipment that is often important but not to that charterer. The owners have no obligation to report the inspection result or provide an action plan under Clause 3(d), but the defect could disrupt the charterers’ normal commercial operations. It is suggested that Clause 3(e)(ii) probably does not then apply and the charterers must rely on Clause 3(a) and (c), or the off-hire clause, which may be sufficient to protect their interests, but the wording of Clause 3(e) is not as clear as it could be.
Sub-Clause (f)
37.36
This confers on the charterers a right to terminate the charter by notice to the owners if the ship is “off-hire under this Clause 3 (with the exception of Clause 3(e)(ii))”.
37.37
That is straightforward, so far as Clause 3(c) and Clause 3(e) are concerned. But is Clause 3(f) engaged by Clause 3(b)? It is perhaps tempting to say so, since only Clause 3(e)(ii) is expressly excluded from the operation of Clause 3(f). It is suggested that is not the correct reading, however. Clause 3(b) does not refer to “off-hire” or to putting the ship off hire, but operates to extend the charterers’ rights of set-off against hire, where there has been a breach of Clause 1, 2(a) or 10. (See on rights of set-off against hire.) In The Fina Samco at first instance, Colman, J., indicated that in a case falling within Clause 3(ii), as it was in the original Shelltime 4 form, off-hire was governed by the off-hire clause (Clause 21), in other words not by Clause 3; see paragraph , above.
37.38 Clause 4 – Period, Trading Limits and Safe Places
| 4. |
(a) Owners agree to let and Charterers agree to hire the vessel for a period of ____ |
110 |
| |
plus or minus ____ days in Charterers’ option, commencing from the time and date of delivery |
111 |
| |
of the vessel, for the purpose of carrying all lawful merchandise (subject always to Clause 28) |
112 |
| |
including in particular; |
113 |
| |
____ |
114 |
| |
in any part of the world, as Charterers shall direct, subject to the limits of the current British |
115 |
| |
Institute Warranties and any subsequent amendments thereof. Notwithstanding the foregoing, |
116 |
| |
but subject to Clause 35, Charterers may order the vessel to ice-bound waters or to any part of |
117 |
| |
the world outside such limits provided that Owner’s consent thereto (such consent not to be |
118 |
| |
unreasonably withheld) and that Charterers pay for any insurance premium required by the |
119 |
| |
vessel’s underwriters as a consequence of such order. |
120 |
| |
(b) Any time during which the vessel is off-hire under this charter may be added to the charter |
121 |
| |
period in Charterers’ option up to the total amount of time spent off-hire. In such cases the rate |
122 |
| |
of hire will be that prevailing at the time the vessel would, but for the provisions of this Clause, |
123 |
| |
have been redelivered. |
124 |
| |
(c) Charterers shall use due diligence to ensure that the vessel is only empoloyed between and at safe |
125 |
| |
places (which expression when used in this charter shall include ports, berths, wharves, docks, |
126 |
| |
anchorages, submarine lines, alongside vessels or lighters, and other locations including |
127 |
| |
locations at sea) where she can safely lie always afloat. Notwithstanding anything contained in |
128 |
| |
this or any other clause of this charter, Charterers do not warrant the safety of any place to |
129 |
| |
which they order the vessel and shall be under no liability in respect thereof except for loss or |
130 |
| |
damage caused by their failure to exercise due diligence as aforesaid. Subject as above, the |
131 |
| |
vessel shall be loaded and discharged at any places as Charterers may direct, provided that |
132 |
| |
Charterers shall exercise due diligence to ensure that any ship-to-ship transfer operations shall |
133 |
| |
conform to standards not less than those set out in the latest published edition of the |
134 |
| |
ICS/OCIMF Ship-to-Ship Transfer Guide. |
135 |
| |
(d) Unless otherwise agreed, the vessel shall be delivered by Owners dropping outward pilot at a |
136 |
| |
port in |
128 |
| |
____ |
138 |
| |
at Owners’ option and redelivered to Owners dropping outward pilot at a port in |
139 |
| |
____ |
140 |
| |
at Charterers’ option. |
141 |
| |
(e) The vessel will deliver with last cargo(es) of ____ and will redeliver with last cargo(es) of ____ |
142 |
| |
(f) Owners are required to give Charterers ____ days prior notice of delivery and Charterers are |
143 |
| |
required to give Owners ____ days prior notice of redelivery. |
144 |
37.39
Questions which may arise under Clause 4(a), Lines 110 to 120, of Shelltime 4 are dealt with in the earlier chapters of this book under Duration (), Lawful Merchandise () and Trading Limits (). Under Lines 115 and 116, trading is restricted to British Institute Warranty limits, but notwithstanding that, and subject to Clause 35 (the war risks clause), the charterers may order the ship not only to ice-bound ports but to ‘any part of the world’ outside Institute Warranty limits, provided that the owners consent and that the charterers pay any additional insurance premium. A general consent to trade outside the trading limits specified in the charter may not release the charterers from their obligations in regard to the safety of ports, even if they pay the premium required for breaching the limits: see paragraph , above. The position may however be different if the owners consent to go to a specified port.
37.40
Clause 4(b), Lines 121 to 124, grants to charterers the option to add off-hire periods to the end of the charter and stipulates that if that option is exercised, hire for the extra time is to be paid at the rate prevailing when the ship would otherwise have been redelivered, that is to say at the end of the primary charter period, rather than (if different) when the off-hire period occurred.
37.41
Clause 4(c), Lines 125 to 135, deals with the obligation upon the charterers to exercise due diligence to ensure that the ship is employed only between safe ports and places. This obligation, which is common to most tanker charters, is narrower than the usual obligation as to the safety of ports undertaken by charterers under dry cargo time charters. It may be overridden, so that an absolute undertaking is imposed after all, by unqualified language as to safety in the fixture recap: see The Greek Fighter [2006] 1 Lloyd’s Rep. Plus 99, per Colman, J., obiter, at [315]. If charterers fixing for trading within “safe ports” (or some equivalent shorthand) and incorporating Shelltime 4 terms intend Clause 4(c) to apply, they would be well advised to ensure that is spelt out in the recap. Where Clause 4(c) does apply, the exclusion of liability in respect of unsafety, except for loss or damage caused by charterers’ failure to exercise due diligence, together with “Subject as above” in Line 131, probably rules out a claim for an implied indemnity of the sort considered in , above, in the context of Clause 8 of the New York Produce form. (That point does not appear to have been considered in the case law. It could have arisen in The Chemical Venture, below, but it would seem that no claim on the basis of an implied indemnity was even put forward by the owners in that case.) It is suggested, however, that the restriction of the charterers’ responsibility to the exercise of due diligence does not mean that the master is obliged to use an unsafe port or berth, although it is perhaps possible to read Lines 131 and 132 literally as having that effect.
37.42
Where damages are sought by the owners under Clause 4(c) in respect of loss or damage resulting from an order to an unsafe port, the correct approach is to consider first whether the port is safe, applying the criteria laid down in The Eastern City , The Evia (No. 2) and other relevant authorities (see , above). If, on those criteria, the port is unsafe, the question then has to be considered whether the charterers have exercised due diligence: see The Saga Cob (C.A.), and The Chemical Venture , per Gatehouse, J., at page 510.
37.43
Due diligence in this context means the same as reasonable care; see The Saga Cob, above, per Parker, L.J., at page 551 and The Chemical Venture, per Gatehouse, J., at page 519. A due diligence clause thus protects charterers who do not know of the unsafety of the port unless prudent charterers, giving the matter careful consideration after due enquiry, would have concluded that the port was unsafe. In The Saga Cob, the Court of Appeal did not have to decide whether due diligence had been exercised, but expressed the opinion that even if the charterers know the facts giving rise to the risk that renders the port unsafe, it does not necessarily follow that they have failed to exercise due diligence. If the charterers order the ship to a port regarded generally by the owners as safe, the Court of Appeal considered that they might well be protected. But clearly charterers could only be protected in such circumstances if those owners who regard the port as safe also know the facts giving rise to the prospective unsafety. Moreover, the Court of Appeal’s observation should not be taken too far. First, a due diligence clause does not entitle charterers, who know or reasonably ought to appreciate that a port is unsafe, to decide for the owners that the degree of unsafety is such that the risk should be undertaken: see The Saga Cob, per Judge Diamond, Q.C., at page 408 of the first instance report. Second, if the charterers know the facts giving rise to the risk that renders a port unsafe, the natural inference may be that they ought to realise the port is unsafe, in which case (as in The Chemical Venture, below) they may be held in breach if they do not adduce evidence to justify their order. Third, it would not be sufficient for the charterers to adduce some opinions that the port was safe if there was evidence that other users, qualified to give an opinion, held a contrary view.
The
Saga Cob was time chartered on the Shelltime 3 form. Clause 3 of that form (the relevant part of which was similar to Clause 4(c) of the Shelltime 4) provided: “Charterers shall exercise due diligence to ensure that the vessel is only employed between and at safe ports… where she can always lie safely afloat, but notwithstanding anything contained in this or any other clause of this charter, Charterers shall not be deemed to warrant the safety of any port… and shall be under no liability in respect thereof except for loss or damage caused by their failure to exercise due diligence as aforesaid.”
The ship was to be employed under the charter in the Red Sea, the Gulf of Aden and East Africa for the carriage of clean petroleum products. In the course of the charter, she called about 20 times at Massawa without incident. On 26 August 1988 she was again ordered to proceed to Massawa, but while anchored off the port on 7 September she was attacked by armoured boats of the Eritrean Peoples’ Liberation Front (EPLF) – an anti-government guerrilla movement – and was damaged. Prior to this date there had been sporadic attacks on the town of Massawa, but insufficient to make it an unsafe port. As for attacks at sea, on 31 May 1988 another vessel had been attacked by EPLF boats 65 miles south of Massawa whilst in a convoy of which the
Saga Cob formed part. Thereafter,
Saga Cob was given a naval escort from time to time but no further attacks on shipping took place until 7 September 1988 and, apart from that one incident, there were no further attacks on shipping until January 1990.
It was held by Judge Diamond, Q.C., at first instance, that on the date the order was given, 26 August, Massawa was a prospectively unsafe port on the ground that there was on that date a foreseeable risk of seaborne attack by the EPLF which, while not involving a high degree of risk, was a risk which was more than negligible. He further held that since the charterers were aware of the facts and the relevant risks, they had failed to exercise due diligence. He said, at page 408, that the due diligence clause “does not entitle the charterer to treat on behalf of owners any degree of risk of danger to the vessel or crew as constituting an acceptable risk. Nor does the clause confer any discretion on the charterers to determine on behalf of owners whether a port is or is not safe. Nor does it entitle the charterer to decide on behalf of owners that the degree of unsafety is such that the risk ought to be undertaken.”
The Court of Appeal, reversing Judge Diamond, Q.C., held that Massawa was a safe port on 26 August and that the judge had adopted an incorrect test by asking whether the risk of attack was foreseeable. The fact that an attack was a foreseeable possibility did not make the risk of attack a characteristic of the port and did not prevent the actual attack on
Saga Cob from being an abnormal and unexpected event. The court emphasised the absence of any incident between May and August, the absence of any evidence that the naval escort system was in any way defective and the fact that there were no further attacks until January 1990, and concluded that the risk of guerrilla attack on ships using Massawa was not a characteristic of the port. In relation to due diligence, Parker, L.J., giving the judgment of the court, said, at page 551, that “if a charterer knows all the facts and orders the vessel to a port which is regarded generally by owners of vessels to be safe, he might well be protected’. On that basis, it might not be enough to show that the charterers should have concluded that there was a small but appreciable risk of attack and there was ‘at least a strong argument that the test [of want of due diligence] should be expressed thus – ‘if a reasonably careful charterer
would on the facts known have concluded that the port was prospectively unsafe’” (original emphasis).
The Saga Cob and
(C.A.).
(See also the comments on this case by Davenport in
.)
The Liberian tanker,
Chemical Venture, chartered on the Shelltime 3 form, was ordered to load at Mina al Ahmadi in Kuwait during the Iran/Iraq war. Shortly before the order was given, Iran had begun air attacks on any tankers using Saudi Arabian and Kuwaiti terminals. At first the master and crew refused to proceed, but helped by the owners with whom they exchanged several telex messages, the charterers eventually persuaded them to do so against payment of war bonuses. The ship was severely damaged by a missile from an Iranian warplane while in the channel leading to Mina al Ahmadi in which three other tankers had been similarly attacked in the previous 11 days (and in which 11 tankers of various flags were subsequently attacked during the next five months).
In the Commercial Court, Gatehouse, J., held that: (a) Clause 3 of the charter applied in the case of political as well as physical dangers; (b) Mina al Ahmadi was unsafe, Iranian air attacks being a normal characteristic of the approach voyage for a tanker, rather than abnormal or unexpected events; (c) the charterers, who knew the relevant facts, had failed to exercise due diligence and were in breach of Clause 3; but (d) what the owners had said (and not said) in their telex exchanges with the charterers while the crew bonuses were being arranged amounted to an unequivocal representation that they would not treat the orders to Mina al Ahmadi as a breach of Clause 3, and this prevented them from subsequently claiming damages from the charterers (but as to that see paragraph
, above).
The Chemical Venture .
Delegation of selection of berths
37.46
This is dealt with at and , above, but in the context of Clause 4 of the Shelltime 4 form, Timothy Walker, J., in Dow Europe v. Novoklav, below, in considering an argument on behalf of time charterers that the due diligence provision in Clause 4 should be construed “in the personal sense”, stated at page 309 of the report: “The short answer is, in my judgment, that this clause does not say so. The standard construction of a due diligence provision is that the obligation is one of due diligence ‘by whomsoever it may be done’ even if the obligation is delegated to an independent contractor (see The Muncaster Castle ; [1961] A.C. 807), unless this is ousted by clear words restricting the obligation to one of personal want of due diligence.” So an order given by time charterers for the ship to proceed to a particular port where the selection of the berth is in the hands of the port authority or terminal will, under Clause 4, make the charterers responsible for any want of due diligence as to the safety of the berth on the part of the port authority or terminal.
The
Alcina was time-chartered on the original Shelltime 4 form to Novoklav, who sub-chartered her to Dow. She was ordered by Novoklav to Arzew, which was controlled by Sonotrach, to load condensate. At the berth to which she was ordered by Sonotrach or the port authority, EPA, there was a fire and the ship suffered damage. Novoklav settled the claim of the owners and claimed over against Dow. As arbitrators found, the berth was unsafe because there was no emergency shutdown system in place and this was the cause of the accident. Dow argued that the settlement made by Novoklav was unjustified because their obligation under Clause 4 of the Shelltime 4 was no more than an obligation of due diligence in the selection of the port. It was found by arbitrators that both Sonotrach and EPA must have known of the deficiencies of the berth and their failure to exercise due diligence in regard to the safety of the berth was in law the failure of Novoklav. Timothy Walker, J., affirmed the arbitrators’ decision.
Dow Europe v.
Novoklav .
37.48 Clause 5 – Laydays/Cancelling
| 5. |
The vessel shall not be delivered to Charterers before |
145 |
| |
and Charterers shall have the option of cancelling this charter if the vessel is not ready and at their |
146 |
| |
disposal on or before |
147 |
37.49
This clause gives the charterers the option of cancelling if the ship is not ready and at their disposal before the stipulated date. The state of readiness required is, no doubt, that set out in Clauses 1(a) to (h) and 2(a)(i) to (iv) of Shelltime 4. For general comments on readiness and cancelling clauses, see , 8 and 24.
37.50
The cancelling clause in the Essotime form in The Arianna was in somewhat similar terms to that of the Shelltime form. The charter provided:
“3. … hire to commence when written notice… has been given… that the vessel… being then ready… and in every way fitted for the service and the carriage of see Clause 57, and being on delivery tight, staunch and strong… with pipe lines, pumps and heater coils in good working condition, so far as the same can be attained by the exercise of due diligence…
4. … Charterer shall have liberty to cancel this Charter should Vessel not be ready in accordance with the provisions hereof…
57A. The vessel to be employed in general product trading with all liquid cargoes that can safely be handled by product tankers…
69. Owner to at all times maintain tank cleaning system in good order such that 6 machines can run simultaneously, at sea water temperature of 180´F at 170 P.S.I. pressure.”
37.51
The facts of the case are set out under Clause 1, above, at paragraph . One of the questions which arose was whether the charterers were entitled to cancel by reason of the fact that the ship was unable to comply with Clause 69 at the time of delivery. In considering the cancelling clause, Webster, J., said, at page 387: “It is common ground that the charterers’ right to cancel the charter depends, in the first instance, upon the proper construction of cl. 4. [Counsel], on behalf of the charterers, contended that the reference in cl. 4 to ‘the provisions hereof’ was to be taken as a reference to all the provisions of the charter-party (which would include a number of very detailed provisions contained in cl. 80), and that in particular it constituted a reference to cl. 69. I reject that contention. In my view, the words ‘ready in accordance with the provisions hereof’ in cl. 4 are to be construed as a reference to the provisions of cl. 3; and, in my view, those words are to be taken as a reference, therefore, to the words in cl. 3 beginning at the words ‘then ready’ and ending at the words ‘attained by the exercise of due diligence’. This was the conclusion of the arbitrators… with which I respectfully agree.”
37.52
The arbitrators in their award, which was appealed to the Commercial Court, had stated: “The charterers argued that the words in Clause 4, ‘ready in accordance with the provisions hereof” meant that the vessel as tendered had to satisfy every provision of the charter which could be applicable at the delivery date. We do not agree with this very wide construction of the cancelling clause in this charter. In our view this cancelling clause is specially related to those provisions of the charter dealing with readiness for delivery. The Clause is only intended to give an option to cancel if the vessel is not ready for delivery by the cancelling date. The particular term as to readiness for delivery is Clause 3, and in our view the Charterer is only entitled to cancel under Clause 4 if the vessel does not satisfy the provisions as to readiness for delivery specified in Clause 3.”
37.53
In the particular circumstances of the case it was held that the charterers were not entitled to cancel: see under Clause 1 above.
37.54 Clause 6 – Owners to Provide
| 6. |
Owners undertake to provide and to pay for all provisions, wages (including but not limited to all |
148 |
| |
overtime payments), and shipping and discharging fees and all other expenses of the master, officers |
149 |
| |
and crew; also, except as provided in Clauses 4 and 34 hereof, for all insurance on the vessel, for all |
150 |
| |
deck, cabin and engine-room stores, and for water; for all drydocking, overhaul, maintenance and |
151 |
| |
repairs to the vessel; and for all fumigation expenses and de-rat certificates. Owners’ obligations under |
152 |
| |
this Clause 6 extend to all liabilities for customs or import duties arising at any time during the |
153 |
| |
performance of this charter in relation to the personal effects of the master, officers and crew, and in |
154 |
| |
relation to the stores, provisions and other matters aforesaid which Owners are to provide and pay for |
155 |
| |
and Owners shall refund to Charterers any sums Charterers or their agents may have pad or been |
156 |
| |
compelled to pay in respect of any such liability. Any amounts allowable in general average for wages |
157 |
| |
and provisions and stores shall be credited to Charterers insofar as such amounts are in respect of a |
158 |
| |
Period when the vessel is on-hire. |
159 |
37.55 Clause 7 – Charterers to Provide
| 7. |
(a) Charterers shall provide and pay for all fuel (except fuel used for domestic services), towage |
160 |
| |
and pilotage and shall pay agency fees, port charges, commissions, expenses of loading and |
161 |
| |
unloading cargoes, canal dues and all charges other than those payable by Owners in |
162 |
| |
accordance with Clause 6 hereof, provided that all charges for the said items shall be for |
163 |
| |
Owners’ account when such items are consumed, employed or incurred for Owners’ purposes or |
164 |
| |
while the vessel is off-hire (unless such items reasonably relate to any service given or distance |
165 |
| |
made good and taken into account under Clause 21 or 22); and provided further that any fuel |
166 |
| |
used in connection with a general average sacrifice or expenditure shall be paid for by Owners. |
167 |
| |
(b) In respect of bunkers consumed for Owners’ purposes these will be charged on each occasion |
168 |
| |
by Charterers on a “first-in-first-out” basis valued on the prices actually paid by Charterers. |
169 |
| |
(c) If the trading limits of this charter include ports in the United States of America and/or its |
170 |
| |
protectorates then Charterers shall reimburse Owners for port specific charges relating to |
171 |
| |
additional premiums charged by providers of oil pollution cover, when incurred by the vessel |
172 |
| |
calling at ports in the United States of America and/or its protectorates in accordance with |
173 |
| |
Charterers orders. |
174 |
37.56
For general comments on such clauses, see , above. For observations on the obligation of charterers to provide and pay for agency fees in Clause 20 of the Beepeetime 2 charter, see The Sagona and paragraph , above.
37.57 Clause 8 – Rate of Hire
| 8. |
Subject as herein provided, Charterers shall pay for the use and hire of the vessel at the rate of United |
175 |
| |
States Dollars per day, and pro rata for any part of a day, from |
176 |
| |
the time and date of her delivery (local time) to Charterers until the time and date of redelivery (local |
177 |
| |
time) to Owners. |
178 |
37.58
The stipulation that local time shall be used in the computation of hire avoids the difficulties of construction in charters which contain no such express stipulation: see The Arctic Skou and , above. It is supplemented by a general requirement in Clause 21(f) that all references to “time” in the Shelltime 4 form are references to local time, if nothing to the contrary is stated. For a definition of “delivery”, see paragraphs I.13, I.35 and , above, and for comments on redelivery, paragraphs I.13, I.37 and .
37.59 Clause 9 – Payment of Hire
37.60
General comments on payment of hire and withdrawal are to be found in , above.
37.61
The obligation to pay hire is subject to Clause 3(c), which entitles the charterers to make no further hire payments in certain circumstances when the owners have breached their maintenance obligations, and Clause 3(e), which entitles the charterers to put the ship off hire in certain circumstances following a failed inspection of the ship. Payment of hire is to be made in “immediately available funds”. This terminology does not exactly reflect the definition in the authorities of the equivalent of a cash transfer, namely a transfer which gives the owners an unconditional right to the immediate use of the funds transferred: see The Brimnes , (C.A.) and The Chikuma (H.L.), paragraph , above. In The Chikuma the funds transferred were immediately available, but were held not to be unconditional and thus not the commercial equivalent of cash; see paragraph , above.
37.62
Under Clause 9(i) the charterers cannot make any deduction from a hire payment in respect of anticipated off-hire, even if the ship is off hire at the time the hire payment is due, since a deduction can be made only in respect of “any hire paid”. This is different from the position which has been said to pertain under charters in which the off-hire clause provides that ‘the payment of hire shall cease’ when time is lost from the specified causes: see The Lutetian and and , above.
37.63
However, under Clause 9(iii), the charterers may deduct amounts due or reasonably estimated to become due in the future under either of two other provisions. The provisions in question are identified as Clause 3(c) and Clause 24. Clause 24 is the Shelltime 4 speed and performance regime, so this makes sense (and indeed makes sense of Clause 24(b); see paragraph , below). The reference in Clause 9(iii) to Clause 3(c), however, does not make sense. In the original Shelltime 4, the reference was to Clause 3(b) (or, rather, Clause 3(ii), as it was then). Since Clause 3(c) is already catered for, within Clause 9, by the opening words in Line 179, and is not sensible in Clause 9(iii), it is thought the reference to it in Line 189 is to be interpreted as a typographical error for Clause 3(b). Then Clause 9(iii) has the effect, for example, that if a breach of Clause 10 deprives the charterers of space to which they are contractually entitled, they may deduct the value of the unavailable space from advance hire payments.
37.64
Lines 192 and 193, providing that the charterers shall not be responsible for any delay or error on the part of the owners’ bank, merely serve to emphasise that the charterers are responsible, as between themselves and the owners, for any delay or error on the part of their own bank. In default of “proper and timely” payment, the owners do not have an immediate right to withdraw, but under Clause 9(a) must give seven days’ notice before doing so. A valid notice cannot be given until after the time for payment has expired, which means after 2400 hours on the due date at the place where payment is to be made: see The Afovos (H.L.) and paragraph , above. Following the giving of a valid notice, the charterers have seven days within which to make payment, but in addition to the hire due, they must also pay interest calculated in accordance with Clause 9(b) and only that full payment, that is to say, including interest, will prevent the owners from becoming entitled to withdraw.
37.65 Clause 10 – Space Available to Charterers
| 10. |
The whole reach, burthen and decks on the vessel and any passenger accommodation (including |
206 |
| |
Owners’ suite) shall be at Charterers’ disposal, reserving only proper and sufficient space for the |
207 |
| |
vessel’s master, officers, crew, tackle, apparel, furniture, provisions and stores, provided that the |
208 |
| |
weight of stores on board shall not, unless specially agreed, exceed ____ tonnes at any time during the |
209 |
| |
charter period. |
210 |
37.66
If the owners are in breach of Clause 10, the charterers have a right under Clause 3(b) to a reduction of hire, apart from any other remedy they may have for breach: see The Fina Samco and (C.A.). It is thought they may also be able to deduct from advance hire the value of the space not available to them, although this requires recognition of a typographical error in the standard form at Line 189: see under Clause 9(iii) above.
37.67 Clause 11 – Segregated Ballast
| 11. |
In connection with the Council of the European Union Regulation on the Implementation of IMO |
211 |
| |
Resolution A747(18) Owners will ensure that the following entry is made on the International Tonnage |
212 |
| |
Certificate (1969) under the section headed “remarks”: |
213 |
| |
“The segregated ballast tanks comply with the Regulation 13 of Annex 1 of the |
214 |
| |
Convention for the prevention of pollution from ships, 1973, as modified by the Protocol of 1978 |
215 |
| |
relating thereto, and the total tonnage of such tanks exclusively used for the carriage of segregated |
216 |
| |
water ballast is ____ The reduced gross tonnage which should be used for the calculation |
217 |
| |
of tonnage based fees is ____”. |
218 |
37.68 Clause 12 – Instructions and Logs
| 12. |
Charterers shall from time to time give the master all requisite instructions and sailing directions, and |
219 |
| |
the master shall keep a full and, correct log of the voyage or voyages, which Charterers or their agents |
220 |
| |
may inspect as required. The master shall when required furnish Charterers or their agents with a true |
221 |
| |
copy of such log and with properly completed loading and discharging port sheets and voyage reports |
222 |
| |
for each voyage and other returns as Charterers may require. Charterers shall be entitled to take copies |
223 |
| |
at Owners’ expense of any such documents which are not provided by the master. |
24 |
37.69
See generally on this subject , above. See also , above.
37.70
There may be circumstances in which it may be reasonable for the owners or the master not to comply with instructions immediately. In The Houda , the facts of which are set out under Clause 13, below, the ship was chartered on the original Shelltime 4 form and was issued by the charterers with standing instructions stating: “All instructions relating to the voyages of your vessel will be issued by Kuwait Petroleum Corp. in Kuwait.’ When, following the invasion of Kuwait by Iraq, voyage instructions were received by the ship from London, the owners declined to comply with them, questioning whether the instructions were lawful since they did not originate from Kuwait. It was held by the Court of Appeal that in principle owners under a time charter might be entitled to a reasonable time to consider the implications of obeying instructions if they had reasonable doubts about the lawfulness of the orders. Neill, L.J., said, at page 549: ‘It is not of course for this Court to decide whether on the facts the owners had reasonable grounds to pause, but I am satisfied that in a war situation there may well be circumstances where the right, and indeed the duty, to pause in order to seek further information about the source of and the validity of any orders which may be received is capable of arising even if there may be no immediate physical threat to the cargo or the ship.”
37.71 Clause 13 – Bills of Lading
37.72
The stipulation that the master shall be under the orders and directions of the charterers is dealt with in , above. For comments on the signing of bills of lading “without prejudice to this charter”, see paragraph , above and for signature of bills of lading generally, see , above.
37.73
The fact that under Clause 13(a) the master is under the orders and directions of the charterers does not mean that the master or owners must necessarily comply immediately with such orders: see The Houda, , above, and , below. Clause 13(a) contains an express indemnity. Some tanker time charters contain no express indemnity. As to the indemnity normally implied in favour of the owners against the consequences of complying with the charterers’ orders, see et seq., above.
37.74
In The Berge Sund (C.A.), the detailed facts of which are set out at and , below, the charter was not on a standard form although it contained many terms common to standard form tanker time charters. The charter in that case contained no express indemnity although it provided, as is common: “Master, although appointed by, and in the employ of Owner, and subject to Owner’s direction and control, shall observe the orders of the Charterer as regards employment of the Vessel, Charterer’s agents or other arrangements required to be made by Charterer hereunder.” It further provided by the off-hire clause that in the event that a loss of time “not caused by Charterer’s fault” should continue, due to a number of stated causes, for more than 24 hours, the vessel should be off hire. The charterers claimed that the ship was off hire during a period of abnormally lengthy tank cleaning following the carriage of a cargo of off-specification or contaminated cargo. One of the arguments advanced by the owners was that since there was no fault on their part, or on the part of the crew, and since the abnormally lengthy tank cleaning required was a consequence of the charterers’ order to load the cargo, they were entitled to be reimbursed the amount of off-hire by the charterers (if the vessel was off hire) pursuant to an implied indemnity. The charterers’ response was that any implication of an indemnity was inconsistent with the terms of the off-hire clause and the arbitrators accepted the charterers’ argument. Steyn, J., at first instance (, at page 467) took a different view from the arbitrators on the implication of an indemnity, but concluded that in any event the delay which was the subject of the off-hire claim was not directly caused by the charterers’ orders. In the Court of Appeal, Staughton, L.J., expressed the view, obiter, that the implication of an indemnity under the charter in that particular case was inconsistent with the exception of “Charterer’s fault” in the off-hire clause. He said, at page 462 of the Court of Appeal report: “Whatever the correct meaning of the exception of charterers’ fault, it is, as it seems to me, expressly dealing with the circumstances in which conduct by the charterers will prevent the vessel being off hire. That in my opinion excludes any implied term that the charterers will indemnify the owners against loss of hire under the clause caused by compliance with the charterers’ orders, if there has not been charterers’ fault.” (Compare The Marie H , the facts of which are set out at paragraph , above, in which Timothy Walker, J., held that the owners were entitled to be indemnified in respect of off-hire caused by the charterers’ loading, at their risk, dangerous cargo; the off-hire clause reading “should the vessel put back whilst on voyage by reason of an accident or breakdown, for which Charterers are not responsible…”.) Staughton, L.J., also agreed with Steyn, J.’s conclusion that there was no evidence that the delay had been directly caused by the charterers’ orders.
37.75
Under Clause 13(a)(ii) the owners are entitled to an indemnity against all consequences arising from “irregularities in papers supplied by the Charterers or their agents”. In The Boukadoura , Evans, J., held that a bill of lading that overstated the quantity of oil shipped was an ‘irregularity’ within the meaning of a similar provision in Clause 20(a) of the STB Voy form: see paragraph for a fuller statement of the facts of the case.
37.76
In the original Shelltime 4, Clause 13(b) entitled the owners to “an indemnity in a form acceptable to” them before they could be required to discharge other than at the bill of lading destination against presentation of an original bill of lading. It is suggested that under such open-ended wording, which may still be encountered in other tanker charter forms, the indemnity which the owners may require must be reasonable in amount, having regard to the potential liability to which the owners might be exposed, but that so far as concerns the form of indemnity, they are required to do no more than act bona fide in deciding whether the indemnity is acceptable or not: see Astra Trust v. Adams , per Megaw, J., at page 87, The John S. Darbyshire , per Mocatta, J., at page 466, and B.V. Oliehandel Jungkind v. Coastal International , per Leggatt, J., at page 469. It is suggested that this might mean, for instance, that the owners could insist that the indemnity be given or countersigned by a bank, P. & I. Club or other strong surety.
37.77
Now, however, Shelltime 4 obliges the owners to discharge against only an indemnity from the charterers themselves, in the terms set out in Clause 13(b). It would seem, therefore, that if the owners have concern as to the charterers’ creditworthiness on such an indemnity they must seek to address that at the outset by negotiating an amendment to the standard form or an additional clause.
37.78
Clause 13(b) governs when the owners are obliged to discharge a quantity of cargo without presentation of an original bill of lading, or at a place other than the bill of lading destination or being a quantity other than the bill of lading quantity. In the case which follows, on the original Shelltime 4 form, Clause 13(a) had been amended and Clause 13(b) deleted. The question arose whether, in the absence of contractual provision, the owners and the master could refuse to comply with orders of the charterers to discharge cargo without production of bills of lading, even in circumstances where such discharge involves no infringement of the rights of the parties entitled to the possession of the cargo.
The
Houda was time chartered by her owners under an amended original Shelltime 4 charter to Kuwait Petroleum Corporation. When Iraq invaded Kuwait in August 1990, the ship was waiting to load at Mina al Ahmadi. She loaded part of the cargo, leaving bills of lading at the loading port, uncompleted. Those bills were never negotiated nor seen again. After the invasion, the management of the charterers’ business was moved to London and from there they gave orders to the ship, which had anchored off Fujairah, to proceed to the Red Sea for orders, and subsequently, to discharge the cargo at Ain Sukhna. The owners declined to comply with these orders, questioning whether the orders were authorised. The standing instructions given to the ship were that voyage instructions would come from Kuwait.
After a delay of some five weeks, an agreement was reached between the parties under which the cargo was discharged at Ain Sukhna. The charterers claimed that the ship was off hire for that period. The owners contended that there had been no breach of orders on their part because (a) they were entitled to a reasonable time to check whether the orders from London were properly authorised and (b) the charterers could not in any event give a lawful order to discharge the cargo in the absence of bills of lading. The material provisions of Clause 13 of the Shelltime 4 charter had been amended to read: “The master (although appointed by Owners) shall be under the orders and directions of Charterers as regards employment of the vessel… Charterers hereby indemnify Owners against all consequences or liabilities that may arise from the master… complying with Charterers’ or their agents’ orders, (including delivery of cargo without presentation of Bills of Lading)… Letter of Indemnity to owners’ P & I club wording to be incorporated in this charterparty.”
The charterers contended that: (a) there was no justification in delaying compliance with their lawful orders when questions of safety were not involved; and (b) since the orders given from London were authorised and were also given with the authority of the party entitled to the possession of the cargo, the orders were lawful and the owners were bound to discharge the cargo without the presentation of an original bill of lading. Only if the time charterers had not had the authority of the parties entitled to possession of the cargo would the owners have been entitled to refuse the order to discharge.
In the course of argument, it was also contended on behalf of the charterers that Clause 13 of the charter, as amended, in itself entitled the charterers to order the owners to deliver the cargo without production of bills of lading. However, Phillips, J., and the Court of Appeal held that the amended Clause 13 did not purport to define or extend the types of order which the charterers were entitled to give. It only made provision for an obligation to indemnify the charterers in respect of compliances with orders, whether those orders were lawful or not.
The Court of Appeal, reversing Phillips, J., on the two main issues, held as follows. (1) While orders ordinarily required immediate compliance, the circumstances in which an order was received, or the nature of it, might make it unreasonable for the master to comply without further consideration or enquiry. The right of the owners or master to delay for a reasonable time before complying with an order was not confined to specific categories of cases. The question to be determined in each case was how a person of reasonable prudence would have acted in the circumstances; and the circumstances of the case in question were capable of constituting reasonable grounds for some delay in compliance. (2) In the absence of contractual provision, the time charterers were not entitled to require the owners or the master to discharge cargo without production of bills of lading, even though such discharge might not infringe the rights of the parties entitled to possession of the cargo.
The Houda and
(C.A.).
37.80 Clause 14 – Conduct of Vessel’s Personnel
| 14. |
If Charterers complain of the conduct of the master or any of the officers or crew, Owners shall |
283 |
| |
immediately investigate the complaint. If the complaint proves to be well founded, Owners shall, |
284 |
| |
without delay, make a change in the appointments and Owners shall in any event communicate the |
285 |
| |
result of their investigations to Charterers as soon as possible. |
286 |
37.81 Clause 15 – Bunkers at Delivery and Redelivery
| 15. |
Charterers shall accept and pay for all bunkers on board at the time of delivery, and Owners shall on |
287 |
| |
redelivery (whether it occurs at the end of the charter or on the earlier termination of this charter) |
288 |
| |
accept and pay for all bunkers remaining on board, at the price actually paid, on a “first-in-first-out” |
289 |
| |
basis. Such prices are to be supported by paid invoices. |
290 |
| |
Vessel to be delivered to and redelivered from the charter with, at least, a quantity of bunkers on board |
291 |
| |
sufficient to reach the nearest main bunkering port. |
292 |
| |
Notwithstanding anything contained in this charter all bunkers on board the vessel shall, throughout the |
293 |
| |
duration of this charter, remain the property of Charterers and can only be purchased on the terms |
294 |
| |
specified in the charter at the end of the charter period or, if earlier, at the termination of the |
295 |
| |
charter. |
296 |
37.82
The phrase “Charterers shall accept and pay for” bunkers on board at the time of delivery, in the context of the equivalent Clause 14 of the Shelltime 3 was construed in The Saint Anna (approved by the House of Lords in The Span Terza ) as meaning that the property in bunkers at the time of delivery is transferred from the owners to the charterers. The position is the same under the Shelltime 4, although in other respects Clause 15 of the Shelltime 4 differs from Clause 14 of the Shelltime 3.
37.83
It was also held in The Saint Anna that bunkers put on board during the currency of the charter normally remain the property of the charterers, although, as explained by Lord Diplock in The Span Terza, at page 122: “Possession of all bunkers once they are on board the vessel is no doubt vested in the shipowners as bailees who are under a duty to procure that they are used by the master in carrying out the orders which the charterers are authorised by the charter-party to give him as to the employment of the vessel.” The property in the bunkers remains with the charterers until they are purchased by the owners on redelivery: see The Saetta . That is confirmed and reinforced by Lines 293 to 296 at the end of Clause 15.
37.84
The words in parenthesis in Line 288 of Shelltime 4 did not appear in Shelltime 3. In The Saetta it was held that these words in parenthesis, in the original Shelltime 4, applied to a termination of the charter by withdrawal prior to the contractual date for redelivery, so as to transfer to the owners the property in any bunkers belonging to the charterers at the time of withdrawal. As the case demonstrates, however, property in bunkers may not always pass to the charterers from bunker suppliers and hence owners may not acquire title to bunkers on withdrawal or on any other termination of the charter to which the charterers do not accede.
The
Saetta was chartered on the original Shelltime 4 form with an additional Clause 53 reading: “Bunkers on delivery about 250/350 tons Fuel Oil and about 70/150 tons MDO to be paid by Charterers at… US$80 and US$165 respectively… About same quantities and same prices on redelivery.”
The plaintiffs in the case were bunker suppliers who supplied bunkers to the charterers during the currency of the charter under a contract with a retention of title clause. The charterers failed to pay for the bunkers, as the owners knew, but the owners were not aware of the retention of title clause in the bunker supply contract. The owners withdrew the vessel for non-payment of hire and set off the value of the bunkers against amounts owing to them, claiming that they were entitled to the bunkers on board.
It was held by Clarke, J., that: (1) On withdrawal, any property which the charterers had in the bunkers on board, together with the right to possession of the bunkers, passed to the owners since Clause 15 of the charter defined “redelivery” to include earlier termination of the charter. (2) Since the charterers did not have property in the bunkers by reason of the retention of title clause in the bunker supply contract, the owners were guilty of conversion of the bunkers on assuming the property in them at the time of withdrawal and on consuming them, subject to the provisions of Section 25 of the Sale of Goods Act 1979, which gives certain rights to parties receiving goods under a sale or other disposition in good faith and without notice of lien or other right of the original sellers. (3) But the transfer of the right of possession from the charterers to the owners on withdrawal was involuntary and was not achieved by any act or even acquiescence on the part of the charterers so that there was no “delivery” of the bunkers by the charterers to the owners under Section 25(1) of the 1979 Act, “delivery” being defined in Section 61(3) of the same Act as a ‘voluntary transfer of possession from one person to another’.
The Saetta .
37.87 Clause 16 – Stevedores, Pilots, Tugs
| 16. |
Stevedores, when required, shall be employed and paid by Charterers, but this shall not relieve Owners |
297 |
| |
from responsibility at all times for proper stowage, which must be controlled by the master who shall |
298 |
| |
keep a strict account of all cargo loaded and discharged. Owners hereby indemnify Charterers, their |
299 |
| |
servants and agents against all losses, claims, responsibilities and liabilities arising in any way |
300 |
| |
whatsoever from the employment of pilots, tugboats or stevedores, who although employed by |
301 |
| |
Charterers shall be deemed to be the servants of and in the service of Owners and under their |
302 |
| |
instructions (even if such pilots, tugboat personnel or stevedores are in fact the servants of Charterers |
303 |
| |
their agents or any affiliated company); provided, however, that; |
304 |
| |
(a) the foregoing indemnity shall not exceed the amount to which Owners would have been |
305 |
| |
entitled to limit their liability if they had themselves employed such pilots, tugboats or |
306 |
| |
stevedores, and; |
307 |
| |
(b) Charterers shall be liable for any damage to the vessel caused by or arising out of the use of |
308 |
| |
stevedores, fair wear and tear excepted, to the extent that Owners are unable by the exercise of |
309 |
| |
due diligence to obtain redress therefor from stevedores. |
310 |
37.88
In the absence of express terms, the owners are responsible for the operation of loading, stowage and discharging cargo: see paragraph , above. Where, however, a charter requires the charterers to provide and pay for stevedores, that, it is thought, ordinarily transfers to the charterers responsibility for operations performed by the stevedores: see and , above. Thus, if the first sentence of Clause 16 stood alone, while the owners would remain responsible for stowage, the responsibility for other operations performed by stevedores employed and paid for by the charterers would probably be transferred to the charterers. However, any such implication is negatived by the second sentence. Of course, if the charterers themselves were negligent in regard to such operations, the position might be different. In particular, it is suggested that the charterers would retain a liability if they negligently appointed incompetent stevedores (see paragraph , above).
37.89 Clause 17 – Supernumeraries
| 17. |
Charterers may send representatives in the vessel’s available accommodation upon any voyage made |
311 |
| |
under this charter, Owners finding provisions and all requisites as supplied to officers, except alcohol. |
312 |
| |
Charterers paying at the rate of United States Dollars 15 (fifteen) per day for each representative while |
313 |
| |
on board the vessel. |
314 |
37.90 Clause 18 – Sub-letting/Assignment/Novation
| 18. |
Charterers may sub-let the vessel, but shall always remain responsible to Owners for due fulfilment of |
315 |
| |
this charter. Additionally Charterers may assign or novate this charter to any company of the Royal |
316 |
| |
Dutch/Shell Group of Companies. |
317 |
37.91
For comments on sub-letting, see , above. The standing permission to the charterers to assign or novate the charter to any company in the Royal Dutch/Shell Group reflects, obviously, the parentage of the Shelltime form.
37.92 Clause 19 – Final Voyage
| 19. |
If when a payment of hire is due hereunder Charterers reasonably expect to redeliver the vessel before |
318 |
| |
the next payment of hire would fall due, the hire to be paid shall be assessed on Charterers’ reasonable |
319 |
| |
estimate of the time necessary to complete Charterers’ programme up to redelivery, and from which |
320 |
| |
estimate Charterers may deduct amounts due or reasonably expected to become due for; |
321 |
| |
(a) disbursements on Owners’ behalf or charges for Owners’ account pursuant to any provision |
322 |
| |
hereof, and; |
323 |
| |
(b) bunkers on board at redelivery pursuant to Clause 15. |
324 |
| |
Promptly after redelivery any overpayment shall be refunded by Owners or any underpayment made |
325 |
| |
good by Charterers. |
326 |
| |
If at the time this charter would otherwise terminate in accordance with Clause 4 the vessel is on a |
327 |
| |
ballast voyage to a port of redelivery or is upon a laden voyage, Charterers shall continue to have the |
328 |
| |
use of the vessel at the same rate and conditions as stand herein for as long as necessary to complete |
329 |
| |
such ballast voyage, or to complete such laden voyage and return to a port of redelivery as provided |
330 |
| |
by this charter, as the case may be. |
331 |
37.93
The question of the legitimacy or otherwise of orders for a final voyage under a time charter is considered at et seq., above, and ‘last voyage clauses’ are dealt with generally at , et seq. In The World Symphony , where the charter was on the Shelltime 3 form, Lord Donaldson, M.R., in the Court of Appeal, set out, at page 118, the principles which he considered were to be drawn from the decisions in The Dione (the facts of which are set out at paragraph , above) and The Peonia (see paragraph , above) in the following terms: “1. A charter for a fixed period will have a small implied tolerance or margin in its duration. 2. A charter for a fixed period with an expressed tolerance or margin – in this case ‘15 days more or less’ – will have no further implied tolerance or margin. 3. In either of these cases, in the absence of a ‘last voyage’ clause, charterers will be in breach of contract if the vessel is redelivered after the expiry of the fixed period extended by the implied or expressed tolerance or margin, unless the late delivery arises out of a cause for which the owners are responsible. 4. A ‘last voyage’ clause is needed and will protect the charterer if he orders the vessel to undertake a last voyage which can reasonably be expected to enable the vessel to be redelivered punctually, but without fault on his part, in the event such redelivery proves impossible. 5. If a ‘last voyage’ clause is to protect a charterer from being in breach by late redelivery in circumstances in which he has ordered a voyage which is likely to or must have this result, the intention to provide this protection must be clearly expressed.”
37.94
In The World Symphony, above, the Court of Appeal held that the final voyage clause in the Shelltime 3 form, Clause 18, did allow the charterers to order a ship on a last voyage which was likely to exceed the fixed period of the charter (as extended by any express or implied margin), without becoming liable to damages if the market rate was higher than the charter rate during any excess period, because Clause 18 applied expressly “Notwithstanding the provisions of clause 3 [the period clause] hereof”. But Clause 19 of Shelltime 4 is worded differently from Clause 18 of Shelltime 3 and does not have the same effect.
The
Ambor (substituted by the
Once) was chartered on the original Shelltime 4 form. The period of the charter was described in Clause 4 as “a period of 12 months (+/−20 days charterers’ option) with additional option of 6 months to be declared at least 45 days prior to end of the first period, commencing from the time and date of delivery of the vessel…”. The charterers exercised the option for the additional six months and, towards the end of the charter, gave orders for a last voyage which would exceed the maximum period of the charter, as extended by the express 20 days margin. The owners refused to accept the charterers’ orders and the charterers, maintaining that the owners were in repudiation, redelivered the ship within the range of dates provided for by Clause 4. The charterers argued that, although Clause 19 of the Shelltime 4 differed from Clause 18 of Shelltime 3, it was a distinction without a difference and that the court was bound by
The World Symphony. However, it was held by Peter Gross, Q.C., sitting as a Deputy Judge, that the owners were correct in their interpretation and that, since Clause 19 of Shelltime 4 did not contain the crucial words found in Clause 18 of the Shelltime 3, it did not override the provisions of Clause 4 so as to make legitimate, orders that otherwise were illegitimate.
The Ambor .
37.95 Clause 20 – Loss of Vessel
| 20. |
Should the vessel be lost, this charter shall terminate and hire shall cease at noon on the day of her |
332 |
| |
loss; should the vessel be a constructive total loss, this charter shall terminate and hire shall cease at |
333 |
| |
noon on the day on which the vessel’s underwriters agree that the vessel is a constructive total loss; |
334 |
| |
should the vessel be missing, this charter shall terminate and hire shall cease at noon on the day on |
335 |
| |
which she was last heard of. Any hire paid in advance and not earned shall be returned to Charterers |
336 |
| |
and Owners shall reimburse Charterers for the value of the estimated quantity of bunkers on board at |
337 |
| |
the time of termination, at the price paid by Charterers at the last bunkering port. |
338 |
37.96
Even where there is no express equivalent to Clause 20, the loss of ship will normally bring about the termination of the charter: see the discussion in , above.
37.97
Clause 20 of Shelltime 4 differs from the equivalent Clause 19 of Shelltime 3 in that the latter contained no express provision for termination in the event of a constructive total loss of the ship, nor did it contain provisions in regard to advance hire and bunkers. Other tanker time charters stipulate that in the event of constructive total loss, hire shall cease at the time of the casualty resulting in the loss (see for instance the ExxonMobil Time 2005 form, paragraph 38.17 below). This has given rise to problems in connection with substitution clauses: see The Badagry (C.A.), the facts of which are set out at paragraph , above. See also Court Line v. The King (1945) 78 Ll.L.Rep. 390 and Niarchos v. Shell Tankers and paragraph , above.
37.98
The provision in Clause 20 of Shelltime 4 that in the event of a constructive total loss the charter shall terminate and hire cease on the day on which the ship’s underwriters agree that she is a constructive total loss may involve consideration of Section 61 of the Marine Insurance Act 1906. Under that Section the assured has the option either to treat the loss as a partial loss or as a total loss and the acceptance of the loss by underwriters as a constructive total loss generally only arises if the owners give notice of abandonment to underwriters under Section 62 of the Act. It seems therefore that the time of termination of the charter might in some circumstances be a matter within the control of the owners themselves. The provision might also, in cases of lengthy detainment, defeat any contention that the charter was frustrated at an earlier date than the date on which the underwriters agree a constructive total loss. Clause 20 does not deal with the case where the ship is a constructive total loss but her underwriters refuse to agree that. It is suggested that, in those circumstances, the charter may still be frustrated if the ship is so badly damaged that she cannot be used again for the purposes of the charter (see the discussion in to above).
37.99
For the effect of the Law Reform (Frustrated Contracts) Act 1943, see to , above. Like Clause 16 of the New York Produce form, Clause 20 of the Shelltime 4 form would, it is suggested, be a provision to which Section 2(3) of the Act would apply (see paragraph , above).
37.100 Clause 21 – Off-hire
37.101
Lines 339 and 340 of Clause 21 define “loss of time” as including not only interruption in service, but also reduction in performance. Consistently with this Lines 366 to 368 require that in the calculation of off-hire “any service given or distance made good by the vessel whilst off-hire shall be taken into account in assessing the amount to be deducted from hire”. Clause 21 of the Shelltime 4 form is, therefore, framed as a ‘net loss of time’ off-hire clause. The “loss of time” required has reference to the service immediately required of the ship when the off-hire cause operates on her: see The Berge Sund, and , below; and so The Athena , paragraph , above, would be decided in the same way under Shelltime 4.
37.102
By contrast, the off-hire clause in Shelltime 3 (also Clause 21) was held to be a ‘period’ clause rather than a ‘net loss of time’ clause: see The Bridgestone Maru No. 3 . Under Shelltime 3 no hire was payable from the commencement of the off-hire event until the ship was ready and in an efficient state to resume her service from a position not less favourable to the charterers than that at which the loss of time commenced, without the further words quoted in the previous paragraph. That is to say, no hire at all was payable in respect of that period, even if some (partial or slow) service was then provided. For general comments on off-hire provisions, see , above, and for particular comment on ‘period’ and ‘net loss of time’ clauses, see et seq., above.
The
Bridgestone Maru was chartered on the Shelltime 3 form under which the owners guaranteed that at the date of delivery the ship would be classed by NKK and undertook to exercise due diligence to make her fit to carry butane and/or propane. The off-hire clause (Clause 21) provided: “In the event of loss of time … due to deficiency of personnel or stores, repairs, breakdown (whether partial or otherwise) of machinery or boilers, collision or stranding or accident or damage to the vessel or any other cause preventing the efficient working of the vessel… hire shall cease to be due or payable from the commencement of such loss of time until the vessel is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which such loss of time commenced.”
In the course of the charter, a portable booster pump was installed on board in order to assist discharge of cargo. On arriving at Livorno to discharge a cargo of propane, the port authority refused to allow the cargo to be discharged because the safety regulations of the Registro Italiano Navale (RINA) required that any pumps used should be fixed plant and the booster pump did not comply with this requirement. It was held that although the booster pump arrangement was in fact reasonably safe, the ship’s inability to discharge because of non-compliance with the RINA regulations came within the scope of the words “any other cause preventing the efficient working of the vessel”. Hirst, J., said, at page 83: “… the incapacity of the ship to discharge was attributable to the suspected condition of the ship itself, and as a result the crew could not use the relevant part of the machinery, namely, the pump.”
As to the calculation of off-hire, it was contended by the charterers that the clause was a ‘net loss of time’ clause and consequently the total loss of time consequent upon the inability of the ship to discharge the cargo at Livorno could be taken into account and the calculation could go “backwards as well as forwards in time”. However, the judge held that the clause was a ‘period clause’ so that the loss of time commenced at the time the vessel docked in Livorno and continued only until she sailed from Livorno to proceed to her other destination. It was then that the ship regained her full efficiency and resumed her service from a position not less favourable to the charterers than that at which the loss of time commenced.
The Bridgestone Maru No. 3 .
The
Manhattan Prince was chartered on the Shelltime 3 form. In response to an earlier threat of boycott by the ITF, the owners had undertaken to employ crew complying with ITF’s terms. Subsequently the owners employed a replacement crew not paid at ITF rates and as a result of ITF action, the ship was boycotted at Oxelsund and suffered delay. It was held that the ship was not off hire. Leggatt, J., held that the phrase “efficient working” in the context of Clause 21(1) of the Shelltime 3 form meant “efficient physical working” and that although the ship was prevented from working in the way the charterers would have wished by the action of the ITF, she was fully operational.
The Manhattan Prince .
“From a position not less favourable to Charterers”
37.113
The requirement in Lines 365 and 366 of Clause 21(a) that for hire to recommence the ship shall be in an efficient state to resume her service from a position not less favourable to charterers than that at which the loss of time commenced does not necessarily require that the ship must return to the same berth as the one she was at when she was put off the berth and went off hire. Nor, in considering whether a position is less favourable to charterers is it relevant that an extraneous supervening event, such as changed navigational conditions, may limit the ship’s movement at that position and so cause delay that would not have been encountered in the absence of the off-hire event.
During the charter of the
Trade Nomad, which was on the Shelltime 4 form, two disputes arose regarding the resumption of hire after periods of off-hire. In the first case, the ship was discharging at a berth in Singapore when, on 30 June, discharging was interrupted by a boiler breakdown and she was put off the berth by the authorities, because it was not known how long repairs would take to complete. In the event, repairs were completed on 1 July and she could have returned to the same berth on 5 July, but the charterers ordered her to a second berth where she resumed discharging on 4 July. She left the second berth on 5 July and returned to the original berth on 9 July. The charterers argued that the ship was off hire from 30 June to 9 July, but it was held by the arbitrator that since the charterers altered their discharging schedule instead of waiting for the original berth to come free, the second berth was a position not less favourable to the charterers and the ship came on hire again on 4 July.
In the second case, the ship was damaged in a collision whilst navigating down the Mississippi. She had to put back to undertake repairs but by 5 March was as far down the Mississippi as she had been at the time of the collision and again ready and in an efficient state to resume her service. However, the coastguard had in the meantime restricted shipping movements in the river due to a sunken barge and the ship was unable to sail until 6 March. The charterers argued that it was not until she was able to sail on 6 March that the position in which she was then at anchor could be said to be not less favourable than her position at the time of the collision. It was held by the arbitrator that the ship came on hire again on 5 March because the fact that she could not resume her service had nothing to do with the condition of the ship and was attributable to an entirely extraneous cause.
On appeal Colman, J., held that the arbitrator’s decisions on these two points disclosed no errors of law and he upheld the decisions.
The Trade Nomad .
37.114 Clause 22 – Periodical Drydocking
37.115
Problems may arise under this clause if the drydocking port offered by the charterers under Clause 22(a) has all the necessary facilities for drydocking the ship, but these facilities are occupied and not available at or near the time the charterers put the ship at the owners’ disposal. Under Clause 22(b) such port must have “suitable accommodation” for the periodical drydocking referred to in Clause 22(a), that is a drydocking commencing as soon as practicable after the charterers place the ship at the owners’ disposal. It is suggested that if any physically appropriate drydock is unavailable to the ship at that time, then the accommodation at the port selected by the charterers is not “suitable”. Of course, the charterers will not normally know exactly what work the owners intend to have carried out or how long it will take to complete. If the charterers offer in good faith a port at which there is no suitable dry dock free because of particular needs uncommunicated to the charterers and which they could not reasonably be expected to plan for without specific notice, then it is suggested the owners must bear the risk of delay in waiting for the dry dock to become free or select a “special port” of their own choosing under Clause 22(c). The true cause of delay, in that case, is the owners’ failure, in breach of their duty of co-operation, to take proper care in providing information to enable the charterers to perform their obligation to provide suitable accommodation. If, however, the charterers cannot excuse the lack of promptly available accommodation on that basis, it is suggested they are in breach and the resulting loss of hire under Line 411 would be recoverable by owners in damages.
37.116 Clause 23 – Ship Inspection
| 23. |
Charterers shall have the right at any time during the charter period to make such inspection of the |
439 |
| |
vessel as they may consider necessary. This right may be exercised as often and at such intervals as |
440 |
| |
Charterers in their absolute discretion may determine and whether the vessel is in port or on passage. |
441 |
| |
Owners affording all necessary co-operation and accommodation on board provided, however: |
442 |
| |
(a) that neither the exercise nor the non-exercise, nor anything done or not done in the exercise |
443 |
| |
or non-exercise, by Charterers of such right shall in any way reduce the master’s or Owners’ |
444 |
| |
authority over, or responsibility to Charterers or third parties for, the vessel and every aspect of |
445 |
| |
her operation, nor increase Charterers’ responsibilities to Owners or third parties for the same; |
446 |
| |
and; |
447 |
| |
(b) that Charterers shall not be liable for any act, neglect or default by themselves, their |
448 |
| |
servants or agents in the exercise or non-exercise of the aforesaid right. |
449 |
37.117
Under Clause 23 the charterers have the right to make such inspections of the ship as they consider necessary, whether in port or on passage. It is provided, however, by Clause 23(b) that the charterers shall not be liable for any act, neglect or default by themselves, their servants or agents in the exercise or non-exercise of that right. It is suggested that this exemption would be narrowly construed and that negligence on the part of a representative of the charterers on board the ship for the purposes of an inspection would not be excepted unless it occurred in the actual exercise of the right of inspection.
37.118 Clause 24 – Detailed Description and Performance
37.119
Whereas Clause 24 of Shelltime 3 provided for a guaranteed average speed with a maximum bunker consumption to be calculated on all sea passages over the whole of the time the ship was on hire, Clause 24(a) of the Shelltime 4 form provides for the exclusion from performance calculations of off-hire periods and “Adverse Weather Periods”, being periods when the ship’s speed is reduced for safety in congested waters or poor visibility and days (noon to noon) when winds exceed Beaufort Scale Force 8 for more than 12 hours. Provision is then made in Clause 24(b), Lines 496 to 501, for a pro rata adjustment to be made in the “performance calculation” to take into account the mileage steamed during Adverse Weather Periods. (For a case concerning whether an additional clause and the incorporation of Gas Form C changed Clause 24 of Shelltime 3, as amended, from an ‘all weather warranty’ into a warranty applying only in specified weather conditions, see The Gaz Energy ). It is to be noted that the exceptions in Clause 27(a) and (b) are not applicable to the provisions relating to off-hire or reduction of hire (see Clause 27(d)).
37.120
Remarkably, given the length and detail of Clause 24, it no longer provides in so many words that the charterers are to be paid any balance in their favour. This seems to be a by-product of drafting changes aimed at cutting out the right, given to the owners by Clause 24 of the original Shelltime 4 form, to an increase in hire if time or bunkers are saved when compared with the guarantees. Clause 24(d) now provides specifically that there is no such right, if the inaccuracy in the phrase “performance in excess of the speeds and consumptions [guaranteed]” is overlooked (emphasis supplied). But changes have also been made to Clause 24(b), so that it no longer states that the charterers are entitled to any payment. At the same time, the last sentence of Clause 24(b), now at Lines 502 and 503, is retained, which refers to a “Reduction of hire under… sub-Clause (b)” although no reduction of hire is in fact provided for. Read with Clause 9(iii) (see paragraph 37.63, above), the overall effect is probably as follows: an annual performance calculation is to be carried out in accordance with Clause 24(b); in that calculation the value of time lost (or saved) and the value of bunkers over (or under) consumed is to be netted off, leaving an overall balance (contrast paragraph , above in relation to setting bunkers saved against time lost); if that is a balance in the charterers’ favour, the owners must pay it and the charterers may deduct it from future hire payments; if it is a balance in the owners’ favour, however, the owners are not entitled to anything for it.
37.121
In none of the decided cases on this topic has Clause 24 of the Shelltime 4 form had to be considered. These decided cases have been mainly concerned with tanker time charter forms in which the application of speed and consumption penalty or bonus provisions to adverse weather periods was not made clear. The courts have approached these cases on the footing that, in principle, the ship’s performance during heavy weather periods should be taken into account.
37.122
In Didymi Corporation v. Atlantic Lines & Navigation and (C.A.), the dry cargo time charter incorporated an additional clause more typical of a tanker time charter. That clause provided as follows:
- “(1) The… speed and fuel consumption of the vessel, as stipulated in this Charter Party, are representations by the Owners. Should the actual performance of the vessel taken on an average basis throughout the duration of the Charter Party show any failure to satisfy one or more of such representations, the hire shall be equitably decreased by an amount to be mutually agreed between Owners and Charterers but in any case no more than that required to indemnify the Charterers to the extent of such failure…
- (2) The Owners stipulate that the vessel is capable of maintaining in good weather conditions and shall maintain throughout the period of this Charter Party on all sea passages from seabuoy to seabuoy (speed will be determined by taking the total miles at sea divided by the total hours at sea as shown in the logbooks) a guaranteed average speed of 15.5 knots in good weather conditions (smooth seas, winds less than 3 on the Beaufort Scale) on a guaranteed daily consumption of 40/41 long tons of best grade Fuel Oil having a maximum viscosity of 1,500 seconds, provided the vessel will not remain immobilised for lengthy periods in port(s) and/or anchorage(s).
- (3) The speed and consumption, as guaranteed by the Owners in paragraph (2) above, will be reviewed by Charterers at the end of the duration of this Charter Party, and if it is found that the vessel has failed to maintain as an average during the period of the Charter Party the speed and/or consumption stipulated above, the Charterers shall be indemnified by way of reduction of hire, in accordance with paragraph (1) above.
- (4) Similarly, if it is found that the vessel has maintained as an average during the period of the Charter Party a better speed and/or consumption [than] those stipulated in paragraph (2) above, then Owners shall be indemnified by way of increase of hire, such increase to be calculated in the same way as the reduction provided in the preceding sentence.”
37.123
One of the matters which arose for decision in that case was how the clause was to be applied to periods when the weather conditions did not consist of smooth seas with winds less then Force 3. It was held by Hobhouse, J., and the Court of Appeal that when considering the extent of the ship’s under- or overperformance, it was not right to include periods when the wind was at Force 3 or above, but that once that under- or overperformance had been ascertained it was necessary to assess what loss or gain had been suffered by the parties throughout the whole period of the charter resulting from the under- or overperformance of the ship, calculated in accordance with the contractual yardstick. Hobhouse, J., at page 171 of the first instance report, said: “As regards periods at sea other than in good weather conditions, a similar logic is to be followed. Ex hypothesi the vessel has proved incapable of maintaining the guaranteed speed and/or consumption in good weather conditions. That incapacity can give rise to a loss not only in good conditions but in bad conditions as well. Therefore once the breach of guarantee has been established by reference to performance in good conditions, the loss is capable of being proved for all conditions. This is a normal exercise under the simple form of charterparty speed warranty, which relates to capacity of the vessel to achieve the warranted speed in good conditions. That capacity and any consequent loss may have to be determined from evidence, including expert evidence, about performance in less good conditions… The periods of time, therefore, by reference to which the loss to charterers resulting from the underperformance in good conditions should be calculated can, and prima facie should include the bad weather periods as well. Expert evidence may be needed to prove how this should be done.”
37.124
Similar principles were applied in construing the Revised Clause 5 of the Beepeetime 2 in The Gas Enterprise . Sub-clause 1 of Clause 5 contains undertakings by the owners that at the date of delivery the ship shall conform to the description set out in the attached Gas Form C and that the owners will “… so… maintain the vessel during the period of service under this Charter”. Sub-clauses 2 and 3 of Clause 5 set out the warranted average speed and consumption figures. Sub-clauses 4 and 5 then provide:
- “4) For the purpose of assessing the performance of the vessel, the average speed and bunker consumption of the vessel shall be calculated upon the distance made, the time taken and the quantity of bunkers consumed by the vessel on each sea passage as ordered to be performed by Charterers… from Pilot Station to Pilot Station up to and including Beaufort Force 4 wind and wave. There shall be excluded from such assessment any period (and any distance made or bunkers consumed by the vessel during such period) in respect of which the vessel is off-hire under Clause 23 or during which the vessel is delayed by a reduction in engine speed and necessary for the safe navigation of the vessel in poor visibility or in congested waters…
- 5) If during any passage reviewed under sub-clause (4)
- (a) the average speed of the vessel is less than or exceeds the average speed based upon Charterers’ instructions to the Master from time to time during the passage then the resulting loss or saving in time expressed in hours and/or portions thereof shall be multiplied by the hourly rate of hire and in the case of loss of time the resulting sum shall become payable by Owners to Charterers …
- (b) the total bunker consumption of the vessel is less than or exceeds the quantity of bunkers which would have been consumed by the vessel had she performed at average speed based on Charterers’ instructions as aforesaid and the average bunker consumption applicable to such speed in accordance with the table set out in sub-clause (2) hereof, an amount equal to the value of any excess in bunkers consumed shall become payable by Owners to Charterers…”
37.125
It was contended on behalf of the owners that since sub-clause 5 required the assessment of loss of time to be confined to “the passage reviewed under sub-clause 4”, the assessment necessarily had to exclude all adverse weather periods, because the ‘passage’ defined in sub-clause 4 excluded such periods. It was further contended that to include the adverse weather periods in the assessment under sub-clause 5 would involve uncertainty in the calculation of loss. The Court of Appeal rejected the owners’ interpretation. Lloyd, L.J., said, at page 366: “The words on which [Counsel for the owners] relies are the words ‘If during any passage reviewed under sub-clause 4’. But I cannot read those words as cutting down or qualifying the calculation of the ‘resulting loss’ in sub-clause 5(a), that is to say, the loss resulting from the breach of warranty. The first step in the exercise is to find the average speed for each passage in accordance with sub-clause 4 during periods when the weather was force 4 or less. That establishes the speed (and consumption) of which the vessel was capable during the passage in question and therefore determines whether or not the owners were in breach… Once the speed of which the vessel was capable in fair weather has been established for each passage, the warranty takes effect. If the speed is less than the warranted speed, or if the consumption of bunkers is greater than the warranted consumption for that speed, the charterers are entitled to recover compensation over the whole of the passage in question, not just that part of the passage which was performed in good weather… The warranty is an undertaking as to the speed at which the vessel is capable of performing, not the speed at which she will actually perform.”
37.126
The question which arose in The Al Bida and (C.A.) was as to the period over which the average bunker consumption was to be calculated. The Al Bida was chartered under two one-year time charters, running consecutively, on the older Standtime form, which contained no specific provisions as to how the average bunker consumption was to be calculated. The preamble to the charters provided that the vessel was to be “… capable of maintaining under normal working conditions an average sea speed of about 15.5 knots in moderate weather when fully laden on an average consumption of 53 metric tons IFO 1,500 fully laden and 50 metric tons in ballast… per 24 hours”. In the Form C. Gas which was incorporated into the charter reference was made to “guaranteed sea speed on a year period abt. 15.5 knots”, but in the description of consumption in the Form C. Gas there was no reference to any period. The owners contended that the average bunker consumption should be taken over the two-year total period of the charters so that they would have the benefit of periods when the vessel achieved a better consumption than that warranted to offset periods when the consumption was worse than that warranted. They argued that the fact that the average speed was to be calculated over one year supported their interpretation of the charter. The arbitrators, whose decision on this point was supported by Evans, J., and the Court of Appeal, rejected the owners’ contention and calculated damages for breach of the consumption warranty by averaging consumption on a voyage-by-voyage basis. The courts considered that the reference to a one-year period in relation to speed, when there was no such reference in the case of consumption, pointed away from the construction contended for by the owners and that since the warranty was specifically directed towards the capacity of the vessel to maintain the stated average consumption, the relevant periods were those during which the vessel failed to measure up to her warranted consumption and when therefore there was a breach of warranty. It was not relevant to take into account those periods when there was no breach of warranty. For comments on that part of the decision which dealt with the meaning of “about” in the speed warranty, see paragraph , above.
37.127
Two reported cases on the guarantees in Clause 24 of the Shelltime 3 form turned largely on their own special facts. In The Larissa , the relevant parts of an amended Clause 24 of the Shelltime 3 charter provided:
“… Owners guarantee that the average speed of the vessel will not be less than 14.6 knots …with a maximum bunker consumption of 2 tons of diesel oil, 42 tons fuel oil per day…
If during any year from the commencement of the charter period the vessel falls below or exceeds the performance guaranteed in this clause then… (b) If such shortfall or excess results respectively from an increase or a decrease in the vessel’s average daily bunker consumption, as herein defined, in relation to the average daily consumption guaranteed hereunder, hire shall be reduced or increased as may be appropriate by an amount equivalent to the value of the excess or saving in bunkers involved…”
37.128
The ship’s actual bunker consumption, both prior to the commencement of the charter and during the charter period, was not 42 tons per day, but about 32 tons per day and the charterers’ primary contention was that on a proper construction of Clause 24, the word “decrease” in sub-clause (b) was not apt to describe a misdescription when in fact there had been no decrease in bunker consumption from the time the ship entered on the charter service. It was held, however, that the word “decrease” in Clause 24(b) was used to describe any shortfall from the guaranteed maximum consumption inserted earlier in Clause 24 and had no reference to actual consumption.
37.129
The second case, The Evanthia M , was a case on an amended Shelltime 3 form as to the effect upon the consumption guarantee in Clause 24 of an addendum clause which allowed the charterers to use the ship for floating storage.
37.130 Clause 25 – Salvage
| 25. |
Subject to the provisions of Clause 21 hereof, all loss of time and all expenses (excluding any |
515 |
| |
damage to or loss of the vessel or tortious liabilities to third parties) incurred in saving or attempting |
516 |
| |
to save life or in successful or unsuccessful attempts at salvage shall be borne equally by Owners and |
517 |
| |
Charterers provided that Charterers shall not be liable to contribute towards any salvage payable by |
518 |
| |
Owners arising in any way out of services rendered under this Clause 25. |
519 |
| |
All salvage and all proceeds from derelicts shall be divided equally between Owners and Charterers |
520 |
| |
after deducting the master’s, officers’ and crew’s share. |
521 |
37.131
Under Clause 27(b) the ship has liberty to tow or go to the assistance of ships in distress and to deviate for the purposes of saving life or property.
37.132
The scheme of Clause 25 is that the charterers share the expenses of any attempt to salve property or save life, but do not share the cost of loss or damage to the ship, tortious liability to third parties and liabilities of the ship herself to pay salvage remuneration. The consequence is, it seems, that if the ship, in attempting the salvage of another vessel, has to take tug assistance on a salvage basis, the charterers will not be liable to contribute, but if the ship has to take a tug on a contract basis as a result of the attempt to salve the other vessel, the cost of it will be shared by the charterers.
37.133 Clause 26 – Lien
| 26. |
Owners shall have a lien upon all cargoes and all freights, sub-freights and demurrage for any |
522 |
| |
amounts due under this charter; and Charterers shall have a lien on the vessel for all monies paid in |
523 |
| |
advance and not earned, and for all claims for damages arising from any beach by Owners of this |
524 |
| |
Charter. |
525 |
37.134
There are conflicting decisions at first instance as to the meaning of “sub-freights” in the context of the lien clause in the New York Produce form charter where it is provided that “the Owners shall have a lien upon all cargoes, and all sub-freights for any amounts due under this Charter”: The Cebu and The Cebu (No. 2) and see et seq., above. In the second of these cases the judge concluded that “sub-freights” did not include sub-time charter hire, relying on the contemporary understanding as to the meaning of the term “freight”. It is suggested that in Clause 26 of the Shelltime 4, the linking of “demurrage” to “sub-freights” in Line 522 would reinforce that conclusion.
37.135
On liens, see generally , above.
37.136 Clause 27 – Exceptions
37.137
Exceptions are subject to the general rule of construction that they do not cover negligence unless they show a clear intention to do so.
37.138
The terminology of many of the exceptions in Clause 27(a) of the Shelltime 4 reflects the terminology of the exceptions in Article IV, rule 2 of the Hague Rules and the terms will, it is suggested, be given the same meaning (for which see Bills of Lading, to and Voyage Charters, to ).
37.139
The effect of the exceptions in Lines 527 to 532 of Clause 27(a) may well, however, be different. The exceptions in Article IV, rule 2 of the Hague Rules can be relied on only in circumstances where the loss or damage was not contributed to by want of due diligence on the part of the carrier in making the vessel seaworthy before and at the beginning of the voyage. The exceptions in Lines 527 to 532, however, can be relied upon only if the loss or damage was not contributed to by any breach of Clauses 1, 2, 3 or 24. Clauses 1(a) to (h) and 2(a)(i) to (iv) are ‘absolute’ requirements of seaworthiness and fitness at the time of delivery under the charter (see paragraph , above); Clauses 1(a)(i) to (m), 2(a)(v) and (vi) and 2(b) impose ‘absolute’ obligations in regard to service throughout the period of the charter (subject to the caveat at paragraph , above in respect of Clauses 1 and 2(a)); and Clause 3(a) imposes a continuing obligation throughout the period of the charter to exercise due diligence to maintain or restore the conditions set out in Clauses 1(a) to (h) and 2(a)(i) to (iv) (see again paragraph above).
37.140
With regard to Clause 27(b) it is not considered that the concept of deviation is relevant to an ordinary period time charter, although it might apply to a time charter for a trip or voyage: see and , above. The liberties included in Clause 27(b) appear therefore to be relevant mainly to the obligation under Clause 2(b) to prosecute all voyages with the utmost despatch and under Clause 13(a) to comply with the charterers’ orders and directions. Where the Hague or Hague-Visby Rules, or the Hamburg Rules, are applicable by virtue of Clause 27(c)(ii), the liberty to deviate for saving life or property will be governed respectively by Article IV, rule 4, or Article 5(6), of the relevant Rules: see paragraph , above. See also Clause 25 which relates to salvage.
37.141
The effect of Clause 27(c)(i) is that the owners do not have the benefit of the Clause 27(a) exceptions, nor the exceptions in the Hague or Hague-Visby Rules, in the case of loss or damage to the berths, works or equipment referred to in this sub-clause. This sub-clause was introduced into the Shelltime 4 form to meet any claim that the owners would be exempted from liability for any such damage by the exception in Clause 27(a) that the owners shall not “be liable for any loss or damage… from any act, neglect or default of the master, pilots, mariners or other servants of Owners in the navigation or management of the vessel…”: see Australian Oil Refining v. Miller ; The Satya Kailash (C.A.); and paragraph , above. Accordingly the owners will be liable for loss or damage caused to the charterers in the circumstances covered by this sub-clause which results from the owners’ breach of any of the terms of the charter or from negligence for which the owners are responsible.
37.142
In regard to claims “arising out of any loss of or damage to or in connection with cargo”, the effect of Clause 27(c)(ii) is to apply to that claim, whether brought by the charterers or any other person, whichever of the Hague, Hague-Visby or Hamburg Rules should have been incorporated in the relevant bills of lading, as to which see under Clause 38, below. If no bill of lading was issued, Clause 27(c)(ii) subjects any such claim to the Hague-Visby Rules “unless the Hamburg Rules compulsorily apply in which case to the Hamburg Rules”, which it is thought must mean applying by legislation to the shipment in question although no bill of lading was issued and not applying by legislation to the time charter. See also paragraph on the limited nature of the application of the Hague-Visby Rules to the time charter, under Clause 27(c)(ii).
37.143
The effect of applying the Hague or Hague-Visby Rules to cargo claims, even when brought by the charterers, is not only to reduce the absolute obligations of seaworthiness at the beginning of the charter in Clauses 1(a) to (h) and 2(a)(i) to (iv) to obligations to exercise due diligence to make the ship seaworthy at that time, but also to impose an obligation of due diligence in regard to seaworthiness before and at the beginning of the relevant voyage under the charter: see the discussion at et seq., above, and Adamastos Shipping v. Anglo-Saxon Petroleum (The Saxon Star) . It is to be noted, however, that in The Saxon Star there was no restriction of the Hague Rules to particular claims as in Clause 27(c)(ii). The effect of applying the Hamburg Rules will also be, it is suggested, to supplant those absolute obligations, as the owners will be able to avoid liability by proving under Article 5(1) of the Rules that they, their servants and agents took all measures that could reasonably be required to avoid the occurrence and its consequences.
37.144
Generally, in relation to the Hague and Hague-Visby Rules, see , above.
“act of war”
37.145
The Exceptions clause (Clause 28) of the Shelltime 3 form, which in this respect is in similar terms to Shelltime 4, was considered in The Chemical Venture in the context of the obligation on charterers under Clause 3 of Shelltime 3 (now Clause 4 of Shelltime 4) to exercise due diligence to ensure that the ship is employed only between good and safe ports. One of the arguments advanced by the charterers in that case (the facts of which are set out at paragraph , above) was that even if, prima facie, they were in breach of their obligations under Clause 3, they could nevertheless rely upon the exceptions in Clause 28 and in particular upon the provision that “… neither the vessel, her master or Owners, nor Charterers shall, unless otherwise in this charter expressly provided, be responsible for any loss or damage or delay or failure in performance hereunder arising or resulting from… act of war…”.
37.146
In rejecting this contention, Gatehouse, J., adopting the argument of counsel for the owners, said, at page 516: “Does clause 28 provide the Charterers with a defence in the event that they are prima facie in breach of clause 3 where the port is unsafe by reason of the risk of an act of war? (a) the Charterers had an obligation under clause 3 to exercise due diligence to ensure that the vessel was not employed at or between ports which were unsafe by reason of war; (b) clause 28 is a general exceptions clause not primarily directed to war risks. As a matter of construction it protects the Charterers only when their failure in performance (and any loss or damage resulting therefrom) has been brought about by one of the excepted perils. In particular, (i) it does not protect them from liability arising from their own negligence: The Emmanuel C per Bingham, J., at pp. 312, 313 and 314, approved in The Satya Kailash , 597 (C.A.); (ii) it is not intended to relieve them from their obligation to exercise due diligence under clause 3 in relation to ports which are unsafe due to hostilities; (c) if in breach of clause 3 the Charterers failed to exercise due diligence to ensure that the vessel was employed between safe ports with the result that she became exposed to the risks of acts of war their failure in performance was caused by their own negligence rather than by any act of war and clause 28 does not protect them.”
37.147 Clause 28 – Injurious Cargoes
| 28. |
No acids, explosives or cargoes injurious to the vessel shall be shipped and without prejudice to the |
556 |
| |
foregoing any damage to the vessel caused by the shipment of any such cargo, and the time taken to |
557 |
| |
repair such damage, shall be for Charterers’ account. No voyage shall be undertaken, nor any goods |
558 |
| |
or cargoes loaded, that would expose the vessel to capture or seizure by rulers or governments. |
559 |
37.148
For discussion of dangerous cargo generally, see .
37.149
The relationship between this clause and Clause 27 might give rise to some uncertainty. Clause 27(c)(ii) provides that Clause 27(a) (the general exceptions clause) shall not apply to or affect any liability of the owners or the vessel or any other relevant person in respect of “any claim… arising out of any loss of or damage to or in connection with cargo”. The sub-clause then goes on to provide that “All such claims” shall be subject to the Hague-Visby, Hague or Hamburg Rules, as the case may be. Thus, it would seem that where the claim is against the owners in respect of loss of or damage to cargo, or otherwise in connection with cargo, a defence asserting dangerous cargo stands or falls on Article IV, rule 6 of the Hague or Hague-Visby Rules or Article 13 of the Hamburg Rules, as the case may be. Where, however, the owners claim against the charterers for damage caused to the ship by dangerous cargo, Clause 28 applies. It should then be noted that Line 556 of Clause 28 refers only to “cargoes injurious to the vessel” and says nothing about cargoes that might be dangerous only to other cargo. To imply that such cargo is prohibited might be regarded as inconsistent, but the point has not been decided.
37.150
Lines 558 and 559 of Clause 28 prohibit the undertaking of any voyage or the loading of any cargo “that would expose the vessel to capture or seizure by rulers or governments”. Terms such as “capture” or “seizure”, in the context of a time charter, will be given a broad commercial interpretation. In Tonnevold v. Finn Friis [1916] 2 K.B. 551, a time charter that was still current at the outbreak of the 1914–1918 war, provided that “no voyage be undertaken and no documents, goods or persons shipped that would involve risk of seizure, capture, repatriation, or penalty by rulers or Governments”. In 1915 the owners refused to proceed on certain voyages owing to the risk of attack from enemy submarines. Scrutton, J., in upholding the award of an arbitrator that the owners were justified in their refusal by the clause in the charter, said, at page 552 of the report, that the arbitrator had taken the right commercial view and that it was “… clear that [the parties’] intention was that the shipowner should not be bound to undertake any voyage which would expose him to the risk of having his vessel taken out of his possession ‘by rulers or Governments’, and that when they used the words ‘seizure’ and ‘capture’ they were indicating acts of rulers or Governments which would deprive the owner of his vessel.”
37.151 Clause 29 – Grade of Bunkers
| 29. |
Charterers shall supply fuel oil with a maximum viscosity of centistokes at 50 degrees |
560 |
| |
centigrade and/or marine diesel oil for main propulsion and fuel oil with a maximum viscosity of |
561 |
| |
____ centistokes at 50 degrees centigrade and/or diesel oil for the auxiliaries. If Owners |
562 |
| |
require the vessel to be supplied with more expensive bunkers they shall be liable for the extra cost |
563 |
| |
thereof. |
564 |
| |
Charterers warrant that all bunkers provided by them in accordance herewith shall be of a quality |
565 |
| |
complying with ISO Standard 8217 for Marine Residual Fuels and Marine Distillate Fuels as |
566 |
| |
applicable. |
567 |
37.152
For general comments on the quality of bunkers supplied, see to , above. Lines 565 to 567 identify a specific specification with which the charterers’ bunkers must comply.
37.153 Clause 30 – Disbursements
| 30. |
Should the master require advances for ordinary disbursements at any port, Charterers or their agents |
568 |
| |
shall make such advances to him, in consideration of which Owners shall pay a commission of two and |
569 |
| |
a half per cent, and all such advances and commission shall be deducted from hire. |
570 |
37.154 Clause 31 – Laying-up
| 31. |
Charterers shall have the option, after consultation with Owners, of requiring Owners to lay up the |
571 |
| |
vessel at a safe place nominated by Charterers, in which case the hire provided for under this charter |
572 |
| |
shall be adjusted to reflect any net increases in expenditure reasonably incurred or any net saving |
573 |
| |
which should reasonably be made by Owners as a result of such lay up. Charterers may exercise the |
574 |
| |
said option any number of times during the charter period. |
575 |
37.155
The nature of the charterers’ obligation to nominate a safe place to lay-up the ship if they exercise their option under this clause may be a matter of debate. Lines 128 to 131 of Clause 4(c) of the charter provide that notwithstanding anything contained in that clause or any other clause of the charter, “Charterers do not warrant the safety of any place to which they order the vessel and shall be under no liability in respect thereof except for loss or damage caused by their failure to exercise due diligence as aforesaid”. It is suggested, however, that the obligation in Clause 31 to nominate a safe place for lay-up may not be limited to the exercise of due diligence. Not only does Clause 31 not refer to any such limitation but the limited due diligence obligation in Clause 4 is expressly referable to the employment of the ship, whereas Clause 31 deals with circumstances in which the ship is not to be employed. It may be that the considerations which persuaded the House of Lords in The Evia (No. 2) to construe a safe port obligation as requiring, initially, only that the port should be prospectively safe at the time of nomination, may apply also to the obligation in Clause 31. As with a traditional safe port warranty, however, that does not mean the charterers can insist that the ship proceed to, or continue to lay up at, a place, safe when nominated, that has become unsafe. (In relation to these points, see et seq., above, for a discussion of The Evia (No. 2) and to .)
37.156 Clause 32 – Requisition
| 32. |
Should the vessel be requisitioned by any government, de facto or de jure, during the period of this |
576 |
| |
charter, the vessel shall be off-hire during the period of such requisition, and any hire paid by such |
577 |
| |
governments in respect of such requisition period shall be for Owners’ account. Any such requisition |
578 |
| |
period shall count as part of the charter period. |
579 |
37.157
The meaning of requisition may be defined by statute or regulation. Thus, Section 17(1) of the Compensation (Defence) Act 1939 defined requisition to mean “in relation to any property, take possession of the property or require the property to be placed at the disposal of the requisitioning authority”. Where there has been no relevant statutory definition, the courts have been reluctant to delineate the scope of the term themselves, although distinctions have been drawn between requisition and mere directions to a ship not involving the ship being put at the disposal of the government. In Bombay & Persia Steam Navigation v. Shipping Controller (1921) 7 Ll.L.Rep. 226, Lord Sterndale, M.R., said, at page 227, in considering an order given to a ship in war time by the Shipping Controller: “… what [the Shipping Controller] did in fact was to order this ship, instead of going direct to her contemplated port, to go to Port Said in order that he or some other authority might have the power of taking possession of her or her cargo if that was thought necessary to do so. It was not thought necessary, and what happened was simply that she, under direction, deviated on her voyage. I declined in The Sarpen case [1916] P. 306 to define a requisition in the broad sense, and I intend to continue to decline but, at any rate, it does contemplate employment of some sort by the Government for Government purposes. Here they merely directed her to go to a place to which otherwise she would not have gone… That, in my opinion, is not a requisition. …”
37.158
See also Sutherland v. Compagnie Napolitaine D’Eclairage (1920) 36 T.L.R. 724 (direction to a ship to load a cargo for the British Government held to constitute a requisition), France Fenwick v. The Crown (1926) 26 Ll.L.Rep. 52 and Nicolaou v. Minister of War Transport (1944) 77 Ll.L.Rep. 495.
37.159
The question whether an administration on whose behalf orders or directions are given is to be regarded as a government was considered in Luigi Monta v. Cechofracht (the facts of which are set out at paragraph , above) in the context of the war risks clause in the Gencon Charter. It is suggested that the principles laid down in that case would apply also to the words “any government, de facto or de jure” in Clause 32.
37.160
Although express provision is made in this clause for what is to happen if the ship is requisitioned, the requisition of the ship may, despite the clause, result in the frustration of the charter: see generally on frustration and for authorities on the effects of requisition, to , to , and to above. In some such cases it may be relevant to have regard to the observation of Diplock, J., in Port Line v. Ben Line Steamers , that a requisition of a ship under the Crown’s prerogative power is a temporary taking of possession only, because the power is limited to taking possession for such period as is necessary for the purposes of defence of the Realm.
37.161 Clause 33 – Outbreak of War
| 33. |
If war or hostilities break out between any two or more of the following countries: U.S.A., the |
580 |
| |
countries or republics having been part of the former U.S.S.R. (except that declaration of war or |
581 |
| |
hostilities solely between any two or more of the countries or republics having been part of the |
582 |
| |
former USSR shall be exempted), P.R.C., U.K., Netherlands, then both Owners and Charterers shall |
583 |
| |
have the right to cancel this charter. |
584 |
37.162
The option to cancel under a clause such as this must be exercised within a reasonable time: see Kawasaki v. Belships (1939) 63 Ll.L.Rep. 175 and The Northern Pioneer and paragraph . In Kawasaki v. Bantham Steamship, the facts of which are set out below, the term “war” in a similar clause was interpreted as meaning war as the term would be understood by commercial people. But reading Clause 33 in conjunction with Clause 34, it might be argued that “war” in Clause 33 is intended to have more of a technical meaning than a popular or commercial meaning, because Clause 33 does not define “war”, whereas Clause 34 speaks of “war (de facto or de jure)”.
A time charter of the Nailsea Meadow between Japanese charterers and British owners provided that: “Charterers and owners to have the liberty of cancelling this charterparty if war breaks out involving Japan.” The question arose whether war had broken out between China and Japan by 18 September 1937 when the owners purported to cancel the charter. An umpire found upon a consideration of all the evidence that at the relevant date war had broken out between Japan and China, but it was argued on behalf of the charterers that the court had to refer to the British Government for guidance on whether a war had broken out between two foreign countries or alternatively that “war” had to be interpreted technically in accordance with the principles of international law. Rejecting both these contentions, Goddard, J., and the Court of Appeal, while acknowledging that the court might have to seek guidance from the executive government if the question was whether the U.K. was at war, held that in the circumstances ‘war’ in the charterparty clause under consideration was to be construed as the term ‘would be understood commercially’.
Kawasaki v. Bantham Steamship (1938) 61 Ll.L.Rep. 131 and (1939) 63 Ll.L.Rep. 155 (C.A.)
37.163
In the context of war risk insurance clauses in insurance policies and time charterparties, the term “hostilities” has been held to mean hostile acts committed by belligerents and pre-supposes an existing state of war: see Spinney’s v. Royal Insurance , per Mustill, J., at page 437 and the cases there cited. In Britain Steamship v. The King [1921] 1 A.C. 99, in which the U.K. Government under a T.99 time charter contracted to insure the ship against “all consequences of hostilities or warlike operations whether before or after declaration of war”, Lord Wrenbury observed in the House of Lords, at page 133, that: “… the word ‘hostilities’ does not mean ‘the existence of a state of war’ but means ‘acts of hostility’ or (to use the noun substantive which follows) ‘operations of hostility’. The sentence may be read ‘all consequences of operations of hostility (of war) or operations warlike (similar to operations of war) whether before or after declaration of war’. To attribute to the word the longer meaning – namely, ‘all consequences of the existence of a state of war’ – would give the expression a scope far beyond anything which one can conceive as intended.”
37.164
Clause 33 may therefore be intended to mean that the right of cancellation will arise if war, de jure, is declared between any of the named countries or if one of the named countries commits any hostile act against another named country when there exists a de facto state of war between them.
37.165 Clause 34 – Additional War Expenses
| 34. |
If the vessel is ordered to trade in areas where there is war (de facto or de jure) or threat of war, |
585 |
| |
Charterers shall reimburse Owners for any additional insurance premia, crew bonuses and other |
586 |
| |
expenses which are reasonably incurred by Owners as a consequence of such orders, provided that |
587 |
| |
Charterers are given notice of such expenses as soon as practicable and in any event before such |
588 |
| |
expenses are incurred, and provided further that Owners obtain from their insurers a waiver of any |
589 |
| |
subrogated rights against Charterers in respect of any claims by Owners under their war risk |
590 |
| |
insurance arising out of compliance with such orders. |
591 |
| |
Any payments by Charterers under this clause will only be made against proven documentation. Any |
592 |
| |
discount or rebate refunded to Owners, for whatever reason, in respect of additional war risk premium |
593 |
| |
shall be passed on to Charterers. |
594 |
37.166
This clause covers orders to trade not only in areas where there is war, but also where there is threat of war. It also requires the charterers to pay any additional insurance premia, crew bonuses and other expenses incurred as a consequence of the orders. The wide definition of “war” in this clause, which includes not only war in its technical or legal sense, but also war “de facto” suggests that “threat of war” should also be interpreted widely and not confined to circumstances in which a formal threat of war has been made by one country against another. It may be sufficient to show that owners and charterers generally would have regarded the area to which the ship is ordered as one where there was a threat of war.
37.167
A question can arise in relation to a war risks clause whether it should be regarded as a ‘complete code’, relieving the charterers of any obligation as to safety in regard to the risks covered by it: see The Evia (No. 2) and and , above. Clause 34 provides in Lines 589 to 591 that the obligation to reimburse the owners for additional insurance premia, crew bonuses and other expenses is subject to the proviso that the owners obtain from their insurers a waiver of any subrogation rights. It is suggested, therefore, that the charterers’ obligations as to safety are not, as such, cut down, although a waiver of subrogation rights may reduce their liability for breach. If the charterers reimburse premium against a waiver of subrogation, then no subrogated claim can be made, but the owners would still be entitled in principle to recover uninsured losses (for example, a deductible or loss in excess of an insured limit), or losses not resulting from the risks in respect of which the charterers have paid the premium. If, however, there is no waiver of subrogation, the charterers will not have to reimburse premium and their liability should be entirely unaffected.
37.168
It should also be noted that the obligation on the charterers to pay additional insurance premia, crew bonuses and other expenses under Clause 34, although in some respects wider than the earlier provisions in the Shelltime 3 form, may in some circumstances be narrower than an obligation to pay excess war risks insurance. Standard war risk insurance includes risks other than those resulting from “war… or threat of war”. In particular, although the term “war” has been held to include “civil war” (Pesquerias y Secaderos de Bacalao de España v. Beer (1949) 82 Ll.L.Rep. 500 (H.L.)), violent internal conflicts or disorders falling short of civil war do not fall within the term “war”: see Spinney’s v. Royal Insurance , per Mustill, J., at page 427, and the cases there cited. Yet most such conflicts or disorders would fall within the cover given by a standard marine war risks policy. For commentary on the risks covered under standard marine war risks insurance policies see Marine War Risks (3rd edn). For other cases on War Risk insurance and additional War Risk premium, see et seq., above.
37.169 Clause 35 – War Risks
| 35. |
(a) The master shall not be required or bound to sign Bills of Lading for any place which in his or |
595 |
| |
Owners’ reasonable opinion is dangerous or impossible for the vessel to enter or reach owing |
596 |
| |
to any blockade, war, hostilities, warlike operations, civil war, civil commotions or |
507 |
| |
revolutions. |
598 |
| |
(b) If in the reasonable opinion of the master or Owners it becomes, for any of the reasons set out |
599 |
| |
in Clause 35(a) or by the operation of international law, dangerous, impossible or prohibited |
600 |
| |
for the vessel to reach or enter, or to load or discharge cargo at, any place to which the vessel |
601 |
| |
has been ordered pursuant to this charter (a “place of peril”), then Charterers or their agents |
602 |
| |
shall be immediately notified in writing or by radio messages, and Charterers shall thereupon |
603 |
| |
have the right to order the cargo, or such part of it as may be affected, to be loaded or |
604 |
| |
discharged, as the case may be, at any other place within the trading limits of this charter |
605 |
| |
(provided such other place is not itself a place of peril). If any place of discharge is or |
606 |
| |
becomes a place of peril, and no orders have been received from Charterers or their agents |
607 |
| |
within 48 hours after dispatch of such messages, then Owners shall be at liberty to discharge |
608 |
| |
the cargo or such part of it as may be affected at any place which they or the master may in |
609 |
| |
their or his discretion select within the trading limits of this charter and such discharge shall |
610 |
| |
be deemed to be due fulfilment of Owners’ obligations under this charter so far as cargo so |
611 |
| |
discharged is concerned. |
612 |
| |
(c) The vessel shall have liberty to comply with any directions or recommendations as to |
613 |
| |
departure, arrival, routes, ports of call, stoppages, destinations, zones, waters, delivery or in |
614 |
| |
any other wise whatsoever given by the government of the state under whose flag the vessel |
615 |
| |
sails or any other government or local authority or by any person or body acting or purporting |
616 |
| |
to act as or with the authority of any such government or local authority including any de |
617 |
| |
facto government or local authority or by any person or body acting or purporting to act as or |
618 |
| |
with the authority of any such government or local authority or by any committee or person |
619 |
| |
having under the terms of the war risks insurance on the vessel the right to give any such |
620 |
| |
directions or recommendations. If by reason of or in compliance with any such directions or |
621 |
| |
recommendations anything is done or is not done, such shall not be deemed a deviation. |
622 |
| |
If by reason of or in compliance with any such direction or recommendation the vessel does |
623 |
| |
not proceed to any place of discharge to which she has been ordered pursuant to this charter, |
624 |
| |
the vessel may proceed to any place which the master or Owners in his or their discretion |
625 |
| |
select and there discharge the cargo or such part of it as may be affected. Such discharge shall |
626 |
| |
be deemed to be due fulfilment of Owners’ obligations under this charter so far as cargo so |
627 |
| |
discharged is concerned. |
628 |
| |
Charterers shall procure that all Bills of Lading issued under this charter shall contain the |
629 |
| |
Chamber of Shipping War Risks Clause 1952. |
37.170
This clause is based upon the Chamber of Shipping War Risks Clause, 1952, and charterers are required in Lines 629 and 630 of Clause 35 to incorporate the Chamber of Shipping clause in all bills of lading. Despite the definition of war in the previous clause, Clause 34, as “de facto or de jure”, it is suggested that “war” in this Clause 35, although undefined, should, because of the origin of the clause, be construed similarly to include not only war in a technical sense, but war as the term would be understood commercially: see Kawasaki v. Bantham Steamship (1939) 63 Ll.L.Rep. 155, and paragraph , above. For an analysis of the other terms which appear in Clause 35(a), namely, blockade, hostilities, warlike operations, civil war, civil commotions and revolutions, see Voyage Charters, to .
“dangerous” in the opinion of master or owners
37.171
It was held in The Kanchenjunga, below, that under a provision in the Essovoy War Risks clause, somewhat similar to Clause 35(b) of Shelltime 4, the master of a vessel was entitled to refuse to load cargo at a port bona fide considered by him to be dangerous, even though the owners had waived their right to refuse the charterers’ order to proceed to that port, which was known by the owners to be unsafe at the time of the order.
The
Kanchenjunga was chartered on the Essovoy form for consecutive voyages with loading port options that included Kharg Island. The charter contained a safe port warranty. The ship was ordered by the charterers to load at Kharg Island and on the instructions of the owners the ship proceeded there, gave notice of readiness and anchored off the port awaiting a berth. While the ship was waiting at anchorage, there was an air raid on Kharg in which bombs were dropped. The master thereupon proceeded away from Kharg Island to a safe position and refused to return. Arbitrators found that Kharg Island was, at all times from before the charterers’ order was given, an unsafe port and that what occurred when the air raid took place was no more than the manifestation of the existing prospective danger. Arbitrators further found that at all times the owners knew all the material facts about the dangers.
It was held by Hobhouse, J., the Court of Appeal and the House of Lords, that in the particular circumstances of the case, the owners, by their unequivocal acceptance of the charterers’ order with full knowledge of the facts, waived their right to refuse the order to proceed to Kharg Island. The question then arose whether the owners were in breach in sailing away from Kharg following the air raid.
Clause 20(vi) of the charter provided:
- “(a) If any port of loading or of discharge named in this charterparty or to which the vessel may properly be ordered pursuant to the terms of the bills of lading be blockaded or
- (b) If owing to any war, hostilities, warlike operations… entry into any such port of loading or discharge or the loading or discharge of cargo at any such port be considered by the master or owners in his or their discretion dangerous or… prohibited… the charterers shall have the right to order the cargo or such part of it as may be affected to be loaded or discharged at any other safe port of loading or of discharge within the range of loading or discharging ports respectively established under the provisions of the charterparty (provided such other port is not blockaded or that entry thereto or loading or discharge of cargo thereat is not in the master’s or owner’s discretion dangerous or prohibited…).”
It was held by the House of Lords, affirming the Court of Appeal and Hobhouse, J., that Clause 20(vi)(b) protected the owners from any claim for damages. Hobhouse, J., said, at page 518 of the first instance report: “Owners submit that under the clause the master (and owners) can refuse to load at a port which he bona fide considers to be dangerous… That the master did have at all material times the requisite bona fide belief was not disputed. But charterers disputed that this clause gave the master the right to refuse to load the cargo at Kharg Island. In my judgment the master clearly has that right by necessary implication from the wording of the clause. The clause expressly refers to the discretion which the master has in a situation of danger. The master must clearly have the right to act in accordance with his assessment and it would deprive the clause of its effect in relation to dangerous situations, as opposed to situations of impossibility, if one was to construe it any differently. Likewise he must have the right not to breach a prohibition. Therefore I hold on the facts found by the arbitrators that the master did have the right to refuse to load the cargo at Kharg Island. This gave rise to an option to charterers to nominate another loading port and they chose not to exercise that option. Instead, in circumstances where the master was still entitled bona fide to refuse to load at Kharg Island, charterers terminated the charter-party and cannot complain of any breach on the part of owners.”
The Kanchenjunga ,
(C.A.), and
(H.L.).
The
Product Star was chartered on the Beepeetime 2 form in April 1987 for a period of six months, with charterers’ option for a further six months. The owners were aware at the time the charter was entered into that the main pattern of the charterers’ trade was to load at ports in the United Arab Emirates, including Ruwais, with occasional voyages involving other Arab Gulf areas. Under an additional war risks insurance clause, the charterers were to pay the existing extra basic war risks insurance premium for this pattern of trading and any extra war risks premium over and above the basic war risks premium payable at the date of the charter. Clause 40(2) of the charter provided:
- If (A) any port of loading or of discharge named in this Charter or to which the vessel may properly be ordered pursuant to the terms of the Bills of Lading be blockaded, or
- (B) owing to any war, hostilities, warlike operations, civil war, civil commotions, revolutions, or the operation of international law (a) entry to any such port of loading or of discharge or the loading or discharge of cargo at any such port be considered by the Master or Owners in his or their discretion dangerous or prohibited or (b) it be considered by the Master or Owners in his or their discretion dangerous or impossible for the vessel to reach any such port of loading or of discharge
- then Charterers shall have the right to order the cargo or such part of it as may be affected to be loaded or discharged at any other port of loading or of discharge… ’
Prior to the commencement of the charter, there had been a number of attacks on vessels by both Iraqi and Iranian forces in other parts of the Arabian Gulf, but there had been no attacks on ships trading only to the United Arab Emirates. Between April and the end of August 1987, the
Product Star carried out four voyages from Ruwais to Bangladesh, during which period Iraqi and Iranian attacks on shipping continued. But the nature and extent of the risks involved for ships trading to the United Arab Emirates did not increase. Nevertheless, at the beginning of September, the owners, relying on Clause 40 of the charter, refused an order to proceed again to Ruwais to load on the ground that both they and the master considered entry to the port to be dangerous.
It was held by the Court of Appeal, affirming the judgment of Judge Diamond, Q.C., that: (1) the discretion under Clause 40 had to be exercised honestly and in good faith, and not arbitrarily, capriciously or unreasonably; (2) for the purposes of construing “dangerous” in Clause 40, the common intention that the vessel should trade to United Arab Emirates ports was relevant; the owners had by the terms of the charter accepted that the conditions prevailing at the time it was entered into were not “dangerous” for the purposes of Clause 40 and they were entitled to rely on that clause only if they could show that they reasonably regarded the risks as having increased; and (3) in fact the risks had not increased, the owners’ good faith in refusing to proceed was questionable and in any event their refusal was arbitrary and unjustified.
The Product Star (No. 2) and
(C.A.).
(See also on this case Davenport
and paragraph
above.)
War risks and safety of ports
37.173
The War Risks clause of the Shelltime 3 form (Clause 36), which is similar but not identical to Clause 35 of Shelltime 4, was analysed in The Chemical Venture , the facts of which are set out at paragraph , above, in the context of the other war clauses in Shelltime 3 (Clauses 32 to 35), the safe port undertaking (Clause 3) and the exceptions clause (Clause 28). Gatehouse, J., held that these clauses were not formulated in such a way as to constitute a comprehensive code dealing with the parties’ rights in the event that any aspect of performance became affected by war, so as to override the obligations under Clause 3. Adopting the argument of counsel for the owners, he set out, at page 516, his reasons for this conclusion in the following terms: “[(a)] (i) clause 28 (‘Exceptions’) is a general exceptions clause not primarily directed to the hazards of war, which is not directly linked in any way with clause 35 (‘War Insurance’) or clause 36 (‘War risks’); (ii) clause 32 (‘Requisition’) is dealing with a specific situation under which the vessel may be taken out of the Owners’ control (and therefore out of the charter service) by the Government for purposes which may be (but need not be) connected with the prosecution of war, but does not deal with the direct impact of hostilities on the vessel; (iii)… 33 (‘Outbreak of war’)… is limited in its application to war between certain countries and merely gives a right to cancel the charter; (iv) clauses 34 (‘Additional war expenses’), 35 (‘War insurance’) and 36 (‘War risks’) do deal with certain aspects of the impact of hostilities generally on the vessel’s trading, but not in such a way as to suggest that they were intended to be exhaustive of the owners’ rights or to override clause 3.”
37.174
The judge continued: “(b) Further, under the present charter: (i) the Owners have no unqualified right to refuse to enter a war zone; clause 36 only allows them to refuse to comply with orders if the vessel is ordered to a port which is blockaded (36(2)(A)) or dangerous by reason of war; (ii) under clauses 5 [‘Owners… to pay for all insurance on the vessel’] and 35, the basic cost of war risk insurance is borne by the Owners; the Charterers only have to bear any increase over the rate ruling at the date of the charter and in respect of an agreed value for hull and machinery; (iii) clause 36 makes no provision for war risk insurance against loss of hire or other risks (e.g. injury to crew) which remain the Owners’ responsibility; (iv) clause 36 does not make any provision for time lost through damage to the vessel or injury to her crew as a result of hostilities; (v) the terms of the present charter are comparable in these material respects to those of the charter considered in The Concordia Fjord , per Bingham J., at p.387… and are in the same respects materially different from those of the Baltime form considered in The Evia [1983] 1 A.C. 736, per Lord Roskill at p.766 ….” (See paragraph , above.)
37.175
Much of the above reasoning is applicable to Shelltime 4 also, but it is important to note that the Additional War Expenses clause of Shelltime 4 (Clause 34) is in some respects wider in scope than the Additional War Expenses and War Insurance clauses of Shelltime 3 (Clauses 34 and 35) in that it requires the charterers to pay for “any additional insurance premia, crew bonuses and other expenses” incurred by the owners as a consequence of orders to trade in areas where there is war or threat of war, subject to the proviso that the owners obtain from their insurers a waiver of any subrogation rights against charterers. The scope of such a waiver may raise difficult questions, but presumably it would not extend beyond insured losses resulting from the risks in respect of which the charterers pay additional premium.
37.176 Clause 36 – Both to Blame Collision Clause
| 36. |
If the liability for any collision in which the vessel is involved while performing this charter fails to |
631 |
| |
be determined in accordance with the laws of the United States of America, the following provision |
632 |
| |
shall apply: |
633 |
| |
“If the ship comes into collision with another ship as a result of the negligence of the other ship and |
634 |
| |
any act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation |
635 |
| |
or in the management of the ship, the owners of the cargo carried hereunder will indemnify the |
636 |
| |
carrier against all loss, or liability to the other or non-carrying ship or her owners in so far as such loss |
637 |
| |
or liability represents loss of, or damage to, or any claim whatsoever of the owners of the said |
638 |
| |
cargo, paid or payable by the other or non-carrying ship or her owners to the owners of the said cargo |
639 |
| |
and set off, recouped or recovered by the other or non-carrying ship or her owners as part of their |
640 |
| |
claim against the carrying ship or carrier.” |
641 |
| |
“The foregoing provisions shall also apply where the owners, operators or those in charge of any ship |
642 |
| |
or ships or objects other than, or in addition to, the colliding ships or objects are at fault in respect of |
643 |
| |
a collision or contact.” |
644 |
| |
Charterers shall procure that all Bills of Lading issued under this charter shall contain a provision in |
645 |
| |
the foregoing terms to be applicable where the liability for any collision in which the vessel is |
646 |
| |
involved fails to be determined in accordance with the laws of the United States of America. |
647 |
37.177
For comments on this clause, which is designed to deal with the situation in U.S. law under which the carrier, although protected by the Hague Rules against direct suit by cargo on the carrying ship, may become liable to that cargo indirectly, see and to , above, and paragraphs 38.92 to 38.93, below.
37.178
This clause requires that the charterers shall procure that all bills of lading issued under the charter shall contain the Both-to-Blame Collision clause. If the charterers fail to do so and the owners incur liabilities from which they would have been protected had the clause been included, the owners will be entitled to damages equal to an indemnity.
37.179 Clause 37 – New Jason Clause
| 37. |
General average contributions shall be payable according to York/Antwerp Rules, 1994, as amended |
648 |
| |
from time to time, and shall be adjusted in London in accordance with English law and practice but |
649 |
| |
should adjustment be made in accordance with the law and practice of the United States of America, |
650 |
| |
the following position shall apply: |
651 |
| |
“In the event of accident, danger, damage or disaster before or after the commencement of the |
652 |
| |
voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the |
653 |
| |
consequence of which, the carrier is not responsible by statute, contract or otherwise, the cargo, |
654 |
| |
shippers, consignees or owners of the cargo shall contribute with the carrier in general average to the |
655 |
| |
payment of any sacrifices, losses or expenses of a general average nature that may be made or |
656 |
| |
incurred and shall pay salvage and special charges incurred in respect of the cargo.” |
657 |
| |
“If a salving ship is owned or operated by the carrier, salvage shall be paid for as fully as if the said |
658 |
| |
salving ship or ships belonged to strangers. Such deposit as the carrier or his agents may deem |
659 |
| |
sufficient to cover the estimated contribution of the cargo and any salvage and special charges |
660 |
| |
thereon shall, if required, be made by the cargo, shippers, consignees or owners of the cargo to the |
661 |
| |
carrier before delivery.” |
662 |
| |
Charterers shall procure that all Bills of Lading issued under this charter shall contain a provision in |
663 |
| |
the foregoing terms, to be applicable where adjustment of general average is made in accordance |
664 |
| |
with the laws and practice of the United States of America. |
665 |
37.180
This clause provides for general average to be paid in accordance with the York-Antwerp Rules 1994 and for the adjustment to be drawn up in London in accordance with English law and practice. The clause also makes allowance for the possibility that the adjustment may be made in accordance with the law and practice of the United States.
37.181
The New Jason clause is designed to circumvent the decision of the United States Supreme Court in The Irrawaddy, 171 U.S. 187 (1897), that the exemption from liability for negligence in the navigation and management of the ship, which is contained in Section 3 of the U.S. Harter Act, did not have the further effect of enabling an owner to recover general average contribution where such negligence caused the casualty. For a comment on the New Jason clause, see paragraphs 38.90 to 38.91, below.
37.182
This clause again requires that the charterers shall procure that all bills of lading issued under the charter shall contain the New Jason clause. If the charterers fail to do so and the owners incur a liability from which they would have been protected had the clause been included, the owners will be entitled to damages equal to an indemnity.
37.183 Clause 38 – Clause Paramount
| 38. |
Charterers shall procure that all Bills of Lading issued pursuant to this charter shall contain the |
666 |
| |
following: |
667 |
| |
“(1) Subject to sub-clause (2) or (3) hereof, this Bill of Lading shall be governed by, and have |
668 |
| |
effect subject to, the rules contained in the International Convention for the Unification of Certain |
669 |
| |
Rules relating to Bills of Lading signed at Brussels on 25th August 1924 (hereafter the “Hague |
670 |
| |
Rules”) as amended by the Protocol signed at Brussels on 23rd February 1968 (hereafter the |
671 |
| |
“Hague-Visby Rules”). Nothing contained herein shall be deemed to be either a surrender by the |
672 |
| |
carrier of any of his rights or immunities or any increase of any of his responsibilities or liabilities |
673 |
| |
under the Hague-Visby Rules.” |
674 |
| |
“(2) If there is governing legislation which applies the Hague Rules compulsorily to this Bill of |
675 |
| |
Lading, to the exclusion of the Hague-Visby Rules, then this Bill of Lading shall have effect subject |
676 |
| |
to the Hague Rules. Nothing therein contained shall be deemed to be either a surrender by the carrier |
677 |
| |
of any of his rights or immunities or any increase of any of his responsibilities or liabilities under the |
678 |
| |
Hague Rules.” |
679 |
| |
“(3) If there is governing legislation which applied the United Nations Convention on the Carriage |
680 |
| |
of Goods by Sea 1978 (hereafter the “Hamburg Rules”) compulsorily to this Bill of Lading, to the |
681 |
| |
exclusion of the Hague-Visby Rules, then this Bill of Lading shall have effect subject to the Hamburg |
682 |
| |
Rules. Nothing therein contained shall be deemed to be either a surrender by the carrier of any of his |
683 |
| |
rights or immunities or an increase of any of his responsibilities or liabilities under the Hamburg |
684 |
| |
Rules.” |
685 |
| |
“(4) If any term of this Bill of Lading is repugnant to the Hague-Visby Rules, or Hague Rules, or |
686 |
| |
Hamburg Rules, as applicable, such term shall be void to that extent but no further.” |
687 |
| |
“(5) Nothing in this Bill of Lading shall be construed as in any way restricting, excluding or |
688 |
| |
waiving the right of any relevant party or person to limit his liability under any available legislation |
689 |
| |
and/or law.” |
690 |
37.184
This clause does not have the effect, directly, of incorporating the Hague, Hague-Visby or Hamburg Rules into the charter itself, but requires that the charterers shall procure that all bills of lading issued pursuant to the charter shall contain the Clause Paramount set out in Clause 38, under which the Hague-Visby Rules will apply to such bills of lading unless, in any given case, the Hague or Hamburg Rules “applies… compulsorily” under “governing legislation”. In this context, it is suggested that “governing legislation” must refer to legislation under the law governing the bill of lading.
37.185
Due to Clause 27(c)(ii), however, the indirect effect of Clause 38, where a bill of lading has been issued, is to apply the Hague-Visby, Hague or Hamburg Rules, as the Clause Paramount might dictate, even as between the owners and the charterers, in respect of claims arising out of loss of or damage to or in connection with the cargo: see and , above. For comments on the Rules, see , above.
37.186
If the charterers fail to incorporate the required Clause Paramount into bills of lading issued under the charter, they will be in breach, with the consequences already referred to under Clauses 36 and 37.
37.187 Clause 39 – Insurance/ITOPF
| 39. |
Owners warrant that the vessel is now, and will, throughout the duration of the charter: |
691 |
| |
(a) be owned or demise chartered by a member of the International Tanker Owners Pollution |
692 |
| |
Federation Limited; |
693 |
| |
(b) be properly entered in ——— P & I Club, being a member of |
694 |
| |
the International Group of P and I Clubs; |
695 |
| |
(c) have in place insurance cover for oil pollution for the maximum on offer through the |
696 |
| |
International Group of P&I Clubs but always a minimum of United States Dollars |
697 |
| |
1,000,000,000 (one thousand million); |
698 |
| |
(d) have in full force and effect Hull and Machinery insurance placed through reputable brokers |
699 |
| |
on Institute Time Clauses or equivalent for the value of United States Dollars ——— as from |
700 |
| |
time to time may be amended with Charterers’ approval, which shall not be unreasonably |
701 |
| |
withheld. |
702 |
| |
Owners will provide, within a reasonable time following a request from Charterers to do so, |
703 |
| |
documented evidence of compliance with the warranties given in this Clause 39. |
704 |
37.188 Clause 40 – Export Restrictions
| 40. |
The master shall not be required or bound to sign Bills of Lading for the carriage of cargo to any |
705 |
| |
place to which export of such cargo is prohibited under the laws, rules or regulations of the country |
706 |
| |
in which the cargo was produced and/or shipped. |
707 |
| |
Charterers shall procure that all Bills of Lading issued under this charter shall contain the following |
708 |
| |
clause: |
709 |
| |
“If any laws rules or regulations applied by the government of the country in which the cargo was |
710 |
| |
produced and/or shipped, or any relevant agency thereof, impose a prohibition on export of the cargo |
711 |
| |
to the place of discharge designated in or ordered under this Bill of Lading, carriers shall be entitled |
712 |
| |
to require cargo owners forthwith to nominate an alternative discharge place for the discharge of the |
713 |
| |
cargo, or such part of it as may be affected, which alternative place shall not be subject to the |
714 |
| |
prohibition, and carriers shall be entitled to accept orders from cargo owners to proceed to and |
715 |
| |
discharge at such alternative place. If cargo owners fail to nominate an alternative place within 72 |
716 |
| |
hours after they or their agents have received from carriers notice of such prohibition, carriers shall |
717 |
| |
be at liberty to discharge the cargo or such part of it as may be affected by the prohibition at any safe |
718 |
| |
place on which they or the master may in their or his absolute discretion decide and which is not |
719 |
| |
subject to the prohibition, and such discharge shall constitute due performance of the contract |
720 |
| |
contained in this Bill of Lading so far as the cargo so discharged is concerned”. |
721 |
| |
The foregoing provision shall apply mutatis mutandis to this charter, the references to a Bill of |
722 |
| |
Lading being deemed to be references to this charter. |
723 |
37.189
This clause not only requires that the Export Restrictions clause is to be incorporated by the charterers in all bills of lading, but also stipulates in Lines 722 and 723 that the clause is to apply to the charter itself.
37.190 Clause 41 – Business Principles
| 41. |
Owners will co-operate with Charterers to ensure that the “Business Principles”, as amended |
724 |
| |
from time to time, of the Royal Dutch/Shell Group of Companies, which are posted on the Shell |
725 |
| |
Worldwide Web (www.Shell.com), are complied with. |
726 |
37.191 Clause 42 – Drugs and Alcohol
| 42. |
(a) Owners warrant that they have in force an active policy covering the vessel which meets or |
727 |
| |
exceeds the standards set out in the “Guidelines for the Control of Drugs and Alcohol On |
728 |
| |
Board Ship” as published by the Oil Companies International Marine Forum (OCIMF) dated |
729 |
| |
January 1990 (or any subsequent modification, version, or variation of these guidelines) and |
730 |
| |
that this policy will remain in force throughout the charter period, and Owners will exercise |
731 |
| |
due diligence to ensure the policy is complied with. |
732 |
| |
(b) Owners warrant that the current policy concerning drugs and alcohol on board is acceptable |
733 |
| |
to ExxonMobil and will remain so throughout the charter period. |
734 |
37.193
37.192 Clause 43 – Oil Major Acceptability
| 43. |
If, at any time during the charter period, the vessel becomes unacceptable to any Oil Major, Charterers |
735 |
| |
shall have the right to terminate the charter. |
736 |
37.193
This important provision was not in the original Shelltime 4. It gives the charterers the right to terminate the charter if the ship “becomes unacceptable to any Oil Major” at any time during the charter period. Parties often make express provision that the ship is to be, or is to be rendered, acceptable to oil majors, at delivery or within some specified period: see, for example, The Savina Caylyn , in which Simon, J., dealt with disputes arising under a clause referring to the SIRE system of tanker inspection and vetting established by the Oil Companies International Maritime Forum (OCIMF), the operation of which system was further explained in The Rowan (commented upon by Robert Gay at ) and (C.A.). However, there is no such obligation elsewhere in the Shelltime 4 form and the charterers also have the significant benefit of Clauses 3(d) and (e) should the ship fail inspections; see to , above. It is suggested, therefore, that no promise of acceptability to oil majors, whether at delivery or at any other time, is to be read into Clause 43. Rather, as “becomes unacceptable” suggests, Clause 43 will operate only where something occurs that causes the ship to become unacceptable when previously she had been acceptable.
37.194
Clause 43 contains no definition of who is an oil major. Bespoke provisions as to oil major acceptability often do provide such a definition. Where such a provision is included in the charter, it is suggested that “Oil Majors” in Clause 43 will take its content from that definition. Otherwise, which companies or groups are to be regarded as oil majors at any given time would need to be determined by evidence, including expert evidence. On the basis of such expert evidence, the arbitrator in The Savina Caylyn held, under a 2007 time charter on an amended Shelltime 4 form, that there were then six “oil majors”, namely BP, Shell, ExxonMobil, Chevtex, Total Fina Elf and ConocoPhillips. He, and Simon, J., on appeal, rejected an argument that particular mention of the first five in one part of the parties’ bespoke wording limited the term “oil major” as used in later parts of the wording so as to exclude ConocoPhillips.
37.195 Clause 44 – Pollution and Emergency Response
| 44. |
Owners are to advise Charterers of organisational details and names of Owners personnel together |
737 |
| |
with their relevant telephone/facsimile/e-mail/telex numbers, including the names and contact details |
738 |
| |
of Qualified Individuals for OPA 90 response, who may be contacted on a 24 hour basis in the event of |
739 |
| |
oil spills or emergencies. |
740 |
37.196 Clause 45 – ISPS Code/US MSTA 2002
37.197
This Clause is now current, as the ISPS Code, SOLAS amendments and U.S. Act of 2002 referred to have all been fully in force since 1 July 2004.
37.198 Clause 46 – Law and Litigation
37.199
This clause provides expressly for the charter to be governed by English law: Clause 46(a). Its predecessor, Clause 41 of the original Shelltime 4 form, provided that disputes were to be decided by the English courts, unless either party elected for the dispute to be determined by arbitration in London. The leading English case on interpreting the scope of arbitration clauses is a case under Clause 41, Fiona Trust v. Privalov , in which the House of Lords held that this clause covered a dispute as to whether the charter could be rescinded for bribery. Where arbitration was chosen, Clause 41(c)(ii) provided consent in advance to any appeal to the English High Court against the resulting arbitration award, so long as the appeal was on a question of law arising out of the award. That provision was effective to displace the normal requirement under the Arbitration Act 1996 to obtain the leave of the court to bring such an appeal: see The Trade Nomad .
37.200
Now, however, Clause 46 provides only for arbitration, that is to say reference to arbitration of disputes arising out of a Shelltime 4 charter is now mandatory and not only an option that the parties might choose not to exercise. The intention is for arbitration before a sole arbitrator – see Clause 46(b)(i) – but if the parties do not agree who should be the sole arbitrator, then they are each to appoint an arbitrator and the two arbitrators so appointed are then to appoint a third arbitrator “before any substantive hearing or forthwith if they cannot agree on a matter relating to the arbitration”.
37.201
For comments on applicable time limits, see et seq., above and on arbitration generally, , above.
37.202 Clause 47– Confidentiality
| 47. |
All terms and conditions of this charter arrangement shall be kept private and confidential |
801 |
37.203 Clause 48 – Construction
| 48. |
The side headings have been included in this charter for convenience of reference and shall in no |
802 |
| |
way affect the construction hereof. |
803 |
37.204
This clause makes clear that the clause headings are not to be referred to in construing the charter, by contrast to the rules for construing statutes (see D.P.P. v. Schildkamp [1971] A.C. 1, at page 10, per Lord Reid, and Dixon v. B.B.C. [1979] 1 Q.B. 546, per Shaw, L.J., at page 552).
37.2
Questions arising in connection with the formation of the contract and with the parties to the contract are dealt with earlier in this book in and 2, respectively.
37.60
General comments on payment of hire and withdrawal are to be found in , above.
37.61
The obligation to pay hire is subject to Clause 3(c), which entitles the charterers to make no further hire payments in certain circumstances when the owners have breached their maintenance obligations, and Clause 3(e), which entitles the charterers to put the ship off hire in certain circumstances following a failed inspection of the ship. Payment of hire is to be made in “immediately available funds”. This terminology does not exactly reflect the definition in the authorities of the equivalent of a cash transfer, namely a transfer which gives the owners an unconditional right to the immediate use of the funds transferred: see The Brimnes , (C.A.) and The Chikuma (H.L.), paragraph , above. In The Chikuma the funds transferred were immediately available, but were held not to be unconditional and thus not the commercial equivalent of cash; see paragraph , above.
37.62
Under Clause 9(i) the charterers cannot make any deduction from a hire payment in respect of anticipated off-hire, even if the ship is off hire at the time the hire payment is due, since a deduction can be made only in respect of “any hire paid”. This is different from the position which has been said to pertain under charters in which the off-hire clause provides that ‘the payment of hire shall cease’ when time is lost from the specified causes: see The Lutetian and and , above.
37.63
However, under Clause 9(iii), the charterers may deduct amounts due or reasonably estimated to become due in the future under either of two other provisions. The provisions in question are identified as Clause 3(c) and Clause 24. Clause 24 is the Shelltime 4 speed and performance regime, so this makes sense (and indeed makes sense of Clause 24(b); see paragraph , below). The reference in Clause 9(iii) to Clause 3(c), however, does not make sense. In the original Shelltime 4, the reference was to Clause 3(b) (or, rather, Clause 3(ii), as it was then). Since Clause 3(c) is already catered for, within Clause 9, by the opening words in Line 179, and is not sensible in Clause 9(iii), it is thought the reference to it in Line 189 is to be interpreted as a typographical error for Clause 3(b). Then Clause 9(iii) has the effect, for example, that if a breach of Clause 10 deprives the charterers of space to which they are contractually entitled, they may deduct the value of the unavailable space from advance hire payments.
37.64
Lines 192 and 193, providing that the charterers shall not be responsible for any delay or error on the part of the owners’ bank, merely serve to emphasise that the charterers are responsible, as between themselves and the owners, for any delay or error on the part of their own bank. In default of “proper and timely” payment, the owners do not have an immediate right to withdraw, but under Clause 9(a) must give seven days’ notice before doing so. A valid notice cannot be given until after the time for payment has expired, which means after 2400 hours on the due date at the place where payment is to be made: see The Afovos (H.L.) and paragraph , above. Following the giving of a valid notice, the charterers have seven days within which to make payment, but in addition to the hire due, they must also pay interest calculated in accordance with Clause 9(b) and only that full payment, that is to say, including interest, will prevent the owners from becoming entitled to withdraw.
37.72
The stipulation that the master shall be under the orders and directions of the charterers is dealt with in , above. For comments on the signing of bills of lading “without prejudice to this charter”, see paragraph , above and for signature of bills of lading generally, see , above.
37.73
The fact that under Clause 13(a) the master is under the orders and directions of the charterers does not mean that the master or owners must necessarily comply immediately with such orders: see The Houda, , above, and , below. Clause 13(a) contains an express indemnity. Some tanker time charters contain no express indemnity. As to the indemnity normally implied in favour of the owners against the consequences of complying with the charterers’ orders, see et seq., above.
37.74
In The Berge Sund (C.A.), the detailed facts of which are set out at and , below, the charter was not on a standard form although it contained many terms common to standard form tanker time charters. The charter in that case contained no express indemnity although it provided, as is common: “Master, although appointed by, and in the employ of Owner, and subject to Owner’s direction and control, shall observe the orders of the Charterer as regards employment of the Vessel, Charterer’s agents or other arrangements required to be made by Charterer hereunder.” It further provided by the off-hire clause that in the event that a loss of time “not caused by Charterer’s fault” should continue, due to a number of stated causes, for more than 24 hours, the vessel should be off hire. The charterers claimed that the ship was off hire during a period of abnormally lengthy tank cleaning following the carriage of a cargo of off-specification or contaminated cargo. One of the arguments advanced by the owners was that since there was no fault on their part, or on the part of the crew, and since the abnormally lengthy tank cleaning required was a consequence of the charterers’ order to load the cargo, they were entitled to be reimbursed the amount of off-hire by the charterers (if the vessel was off hire) pursuant to an implied indemnity. The charterers’ response was that any implication of an indemnity was inconsistent with the terms of the off-hire clause and the arbitrators accepted the charterers’ argument. Steyn, J., at first instance (, at page 467) took a different view from the arbitrators on the implication of an indemnity, but concluded that in any event the delay which was the subject of the off-hire claim was not directly caused by the charterers’ orders. In the Court of Appeal, Staughton, L.J., expressed the view, obiter, that the implication of an indemnity under the charter in that particular case was inconsistent with the exception of “Charterer’s fault” in the off-hire clause. He said, at page 462 of the Court of Appeal report: “Whatever the correct meaning of the exception of charterers’ fault, it is, as it seems to me, expressly dealing with the circumstances in which conduct by the charterers will prevent the vessel being off hire. That in my opinion excludes any implied term that the charterers will indemnify the owners against loss of hire under the clause caused by compliance with the charterers’ orders, if there has not been charterers’ fault.” (Compare The Marie H , the facts of which are set out at paragraph , above, in which Timothy Walker, J., held that the owners were entitled to be indemnified in respect of off-hire caused by the charterers’ loading, at their risk, dangerous cargo; the off-hire clause reading “should the vessel put back whilst on voyage by reason of an accident or breakdown, for which Charterers are not responsible…”.) Staughton, L.J., also agreed with Steyn, J.’s conclusion that there was no evidence that the delay had been directly caused by the charterers’ orders.
37.75
Under Clause 13(a)(ii) the owners are entitled to an indemnity against all consequences arising from “irregularities in papers supplied by the Charterers or their agents”. In The Boukadoura , Evans, J., held that a bill of lading that overstated the quantity of oil shipped was an ‘irregularity’ within the meaning of a similar provision in Clause 20(a) of the STB Voy form: see paragraph for a fuller statement of the facts of the case.
37.76
In the original Shelltime 4, Clause 13(b) entitled the owners to “an indemnity in a form acceptable to” them before they could be required to discharge other than at the bill of lading destination against presentation of an original bill of lading. It is suggested that under such open-ended wording, which may still be encountered in other tanker charter forms, the indemnity which the owners may require must be reasonable in amount, having regard to the potential liability to which the owners might be exposed, but that so far as concerns the form of indemnity, they are required to do no more than act bona fide in deciding whether the indemnity is acceptable or not: see Astra Trust v. Adams , per Megaw, J., at page 87, The John S. Darbyshire , per Mocatta, J., at page 466, and B.V. Oliehandel Jungkind v. Coastal International , per Leggatt, J., at page 469. It is suggested that this might mean, for instance, that the owners could insist that the indemnity be given or countersigned by a bank, P. & I. Club or other strong surety.
37.77
Now, however, Shelltime 4 obliges the owners to discharge against only an indemnity from the charterers themselves, in the terms set out in Clause 13(b). It would seem, therefore, that if the owners have concern as to the charterers’ creditworthiness on such an indemnity they must seek to address that at the outset by negotiating an amendment to the standard form or an additional clause.
37.78
Clause 13(b) governs when the owners are obliged to discharge a quantity of cargo without presentation of an original bill of lading, or at a place other than the bill of lading destination or being a quantity other than the bill of lading quantity. In the case which follows, on the original Shelltime 4 form, Clause 13(a) had been amended and Clause 13(b) deleted. The question arose whether, in the absence of contractual provision, the owners and the master could refuse to comply with orders of the charterers to discharge cargo without production of bills of lading, even in circumstances where such discharge involves no infringement of the rights of the parties entitled to the possession of the cargo.
37.101
Lines 339 and 340 of Clause 21 define “loss of time” as including not only interruption in service, but also reduction in performance. Consistently with this Lines 366 to 368 require that in the calculation of off-hire “any service given or distance made good by the vessel whilst off-hire shall be taken into account in assessing the amount to be deducted from hire”. Clause 21 of the Shelltime 4 form is, therefore, framed as a ‘net loss of time’ off-hire clause. The “loss of time” required has reference to the service immediately required of the ship when the off-hire cause operates on her: see The Berge Sund, and , below; and so The Athena , paragraph , above, would be decided in the same way under Shelltime 4.
37.102
By contrast, the off-hire clause in Shelltime 3 (also Clause 21) was held to be a ‘period’ clause rather than a ‘net loss of time’ clause: see The Bridgestone Maru No. 3 . Under Shelltime 3 no hire was payable from the commencement of the off-hire event until the ship was ready and in an efficient state to resume her service from a position not less favourable to the charterers than that at which the loss of time commenced, without the further words quoted in the previous paragraph. That is to say, no hire at all was payable in respect of that period, even if some (partial or slow) service was then provided. For general comments on off-hire provisions, see , above, and for particular comment on ‘period’ and ‘net loss of time’ clauses, see et seq., above.
37.115
Problems may arise under this clause if the drydocking port offered by the charterers under Clause 22(a) has all the necessary facilities for drydocking the ship, but these facilities are occupied and not available at or near the time the charterers put the ship at the owners’ disposal. Under Clause 22(b) such port must have “suitable accommodation” for the periodical drydocking referred to in Clause 22(a), that is a drydocking commencing as soon as practicable after the charterers place the ship at the owners’ disposal. It is suggested that if any physically appropriate drydock is unavailable to the ship at that time, then the accommodation at the port selected by the charterers is not “suitable”. Of course, the charterers will not normally know exactly what work the owners intend to have carried out or how long it will take to complete. If the charterers offer in good faith a port at which there is no suitable dry dock free because of particular needs uncommunicated to the charterers and which they could not reasonably be expected to plan for without specific notice, then it is suggested the owners must bear the risk of delay in waiting for the dry dock to become free or select a “special port” of their own choosing under Clause 22(c). The true cause of delay, in that case, is the owners’ failure, in breach of their duty of co-operation, to take proper care in providing information to enable the charterers to perform their obligation to provide suitable accommodation. If, however, the charterers cannot excuse the lack of promptly available accommodation on that basis, it is suggested they are in breach and the resulting loss of hire under Line 411 would be recoverable by owners in damages.
37.119
Whereas Clause 24 of Shelltime 3 provided for a guaranteed average speed with a maximum bunker consumption to be calculated on all sea passages over the whole of the time the ship was on hire, Clause 24(a) of the Shelltime 4 form provides for the exclusion from performance calculations of off-hire periods and “Adverse Weather Periods”, being periods when the ship’s speed is reduced for safety in congested waters or poor visibility and days (noon to noon) when winds exceed Beaufort Scale Force 8 for more than 12 hours. Provision is then made in Clause 24(b), Lines 496 to 501, for a pro rata adjustment to be made in the “performance calculation” to take into account the mileage steamed during Adverse Weather Periods. (For a case concerning whether an additional clause and the incorporation of Gas Form C changed Clause 24 of Shelltime 3, as amended, from an ‘all weather warranty’ into a warranty applying only in specified weather conditions, see The Gaz Energy ). It is to be noted that the exceptions in Clause 27(a) and (b) are not applicable to the provisions relating to off-hire or reduction of hire (see Clause 27(d)).
37.120
Remarkably, given the length and detail of Clause 24, it no longer provides in so many words that the charterers are to be paid any balance in their favour. This seems to be a by-product of drafting changes aimed at cutting out the right, given to the owners by Clause 24 of the original Shelltime 4 form, to an increase in hire if time or bunkers are saved when compared with the guarantees. Clause 24(d) now provides specifically that there is no such right, if the inaccuracy in the phrase “performance in excess of the speeds and consumptions [guaranteed]” is overlooked (emphasis supplied). But changes have also been made to Clause 24(b), so that it no longer states that the charterers are entitled to any payment. At the same time, the last sentence of Clause 24(b), now at Lines 502 and 503, is retained, which refers to a “Reduction of hire under… sub-Clause (b)” although no reduction of hire is in fact provided for. Read with Clause 9(iii) (see paragraph 37.63, above), the overall effect is probably as follows: an annual performance calculation is to be carried out in accordance with Clause 24(b); in that calculation the value of time lost (or saved) and the value of bunkers over (or under) consumed is to be netted off, leaving an overall balance (contrast paragraph , above in relation to setting bunkers saved against time lost); if that is a balance in the charterers’ favour, the owners must pay it and the charterers may deduct it from future hire payments; if it is a balance in the owners’ favour, however, the owners are not entitled to anything for it.
37.121
In none of the decided cases on this topic has Clause 24 of the Shelltime 4 form had to be considered. These decided cases have been mainly concerned with tanker time charter forms in which the application of speed and consumption penalty or bonus provisions to adverse weather periods was not made clear. The courts have approached these cases on the footing that, in principle, the ship’s performance during heavy weather periods should be taken into account.
37.122
In Didymi Corporation v. Atlantic Lines & Navigation and (C.A.), the dry cargo time charter incorporated an additional clause more typical of a tanker time charter. That clause provided as follows:
37.137
Exceptions are subject to the general rule of construction that they do not cover negligence unless they show a clear intention to do so.
37.138
The terminology of many of the exceptions in Clause 27(a) of the Shelltime 4 reflects the terminology of the exceptions in Article IV, rule 2 of the Hague Rules and the terms will, it is suggested, be given the same meaning (for which see Bills of Lading, to and Voyage Charters, to ).
37.139
The effect of the exceptions in Lines 527 to 532 of Clause 27(a) may well, however, be different. The exceptions in Article IV, rule 2 of the Hague Rules can be relied on only in circumstances where the loss or damage was not contributed to by want of due diligence on the part of the carrier in making the vessel seaworthy before and at the beginning of the voyage. The exceptions in Lines 527 to 532, however, can be relied upon only if the loss or damage was not contributed to by any breach of Clauses 1, 2, 3 or 24. Clauses 1(a) to (h) and 2(a)(i) to (iv) are ‘absolute’ requirements of seaworthiness and fitness at the time of delivery under the charter (see paragraph , above); Clauses 1(a)(i) to (m), 2(a)(v) and (vi) and 2(b) impose ‘absolute’ obligations in regard to service throughout the period of the charter (subject to the caveat at paragraph , above in respect of Clauses 1 and 2(a)); and Clause 3(a) imposes a continuing obligation throughout the period of the charter to exercise due diligence to maintain or restore the conditions set out in Clauses 1(a) to (h) and 2(a)(i) to (iv) (see again paragraph above).
37.140
With regard to Clause 27(b) it is not considered that the concept of deviation is relevant to an ordinary period time charter, although it might apply to a time charter for a trip or voyage: see and , above. The liberties included in Clause 27(b) appear therefore to be relevant mainly to the obligation under Clause 2(b) to prosecute all voyages with the utmost despatch and under Clause 13(a) to comply with the charterers’ orders and directions. Where the Hague or Hague-Visby Rules, or the Hamburg Rules, are applicable by virtue of Clause 27(c)(ii), the liberty to deviate for saving life or property will be governed respectively by Article IV, rule 4, or Article 5(6), of the relevant Rules: see paragraph , above. See also Clause 25 which relates to salvage.
37.141
The effect of Clause 27(c)(i) is that the owners do not have the benefit of the Clause 27(a) exceptions, nor the exceptions in the Hague or Hague-Visby Rules, in the case of loss or damage to the berths, works or equipment referred to in this sub-clause. This sub-clause was introduced into the Shelltime 4 form to meet any claim that the owners would be exempted from liability for any such damage by the exception in Clause 27(a) that the owners shall not “be liable for any loss or damage… from any act, neglect or default of the master, pilots, mariners or other servants of Owners in the navigation or management of the vessel…”: see Australian Oil Refining v. Miller ; The Satya Kailash (C.A.); and paragraph , above. Accordingly the owners will be liable for loss or damage caused to the charterers in the circumstances covered by this sub-clause which results from the owners’ breach of any of the terms of the charter or from negligence for which the owners are responsible.
37.142
In regard to claims “arising out of any loss of or damage to or in connection with cargo”, the effect of Clause 27(c)(ii) is to apply to that claim, whether brought by the charterers or any other person, whichever of the Hague, Hague-Visby or Hamburg Rules should have been incorporated in the relevant bills of lading, as to which see under Clause 38, below. If no bill of lading was issued, Clause 27(c)(ii) subjects any such claim to the Hague-Visby Rules “unless the Hamburg Rules compulsorily apply in which case to the Hamburg Rules”, which it is thought must mean applying by legislation to the shipment in question although no bill of lading was issued and not applying by legislation to the time charter. See also paragraph on the limited nature of the application of the Hague-Visby Rules to the time charter, under Clause 27(c)(ii).
37.143
The effect of applying the Hague or Hague-Visby Rules to cargo claims, even when brought by the charterers, is not only to reduce the absolute obligations of seaworthiness at the beginning of the charter in Clauses 1(a) to (h) and 2(a)(i) to (iv) to obligations to exercise due diligence to make the ship seaworthy at that time, but also to impose an obligation of due diligence in regard to seaworthiness before and at the beginning of the relevant voyage under the charter: see the discussion at et seq., above, and Adamastos Shipping v. Anglo-Saxon Petroleum (The Saxon Star) . It is to be noted, however, that in The Saxon Star there was no restriction of the Hague Rules to particular claims as in Clause 27(c)(ii). The effect of applying the Hamburg Rules will also be, it is suggested, to supplant those absolute obligations, as the owners will be able to avoid liability by proving under Article 5(1) of the Rules that they, their servants and agents took all measures that could reasonably be required to avoid the occurrence and its consequences.
37.144
Generally, in relation to the Hague and Hague-Visby Rules, see , above.
37.197
This Clause is now current, as the ISPS Code, SOLAS amendments and U.S. Act of 2002 referred to have all been fully in force since 1 July 2004.
37.199
This clause provides expressly for the charter to be governed by English law: Clause 46(a). Its predecessor, Clause 41 of the original Shelltime 4 form, provided that disputes were to be decided by the English courts, unless either party elected for the dispute to be determined by arbitration in London. The leading English case on interpreting the scope of arbitration clauses is a case under Clause 41, Fiona Trust v. Privalov , in which the House of Lords held that this clause covered a dispute as to whether the charter could be rescinded for bribery. Where arbitration was chosen, Clause 41(c)(ii) provided consent in advance to any appeal to the English High Court against the resulting arbitration award, so long as the appeal was on a question of law arising out of the award. That provision was effective to displace the normal requirement under the Arbitration Act 1996 to obtain the leave of the court to bring such an appeal: see The Trade Nomad .
37.200
Now, however, Clause 46 provides only for arbitration, that is to say reference to arbitration of disputes arising out of a Shelltime 4 charter is now mandatory and not only an option that the parties might choose not to exercise. The intention is for arbitration before a sole arbitrator – see Clause 46(b)(i) – but if the parties do not agree who should be the sole arbitrator, then they are each to appoint an arbitrator and the two arbitrators so appointed are then to appoint a third arbitrator “before any substantive hearing or forthwith if they cannot agree on a matter relating to the arbitration”.
37.201
For comments on applicable time limits, see et seq., above and on arbitration generally, , above.