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Jagmeet Singh Makkar Under a time charter contract between
the Charterer and the Ship Owner, the Ship Owner “warrants”
that his vessel will perform within the parameters specified under the
description clause. Failure to perform as per the speed and fuel consumption
specified may cause “breach of
contract” and result in a claim for damages by the Charterer. It is thus important that the senior shipboard
personnel are fully aware of the implications of such a breach. A “condition”
is a term fundamental to the contract, which if there is a failure in its
observance, causes the contract itself to be substantially different to that
which the parties originally contracted. A breach of a “condition” entitles the other party to refuse to perform (if he
has not already performed) a contract. Damages may be claimed. A “warranty”
is a term not fundamental to the contract, but only “collateral” to it. The innocent party is entitled to damages only
for a breach of warranty, there is no right to repudiate the contract. Generally speaking, whether any
particular term is a condition or a warranty depends on the intention,
interpretation and construction of each individual contract. Under a time charter contract, the time
charter takes on the role of the Owner (and is called the “disponent owner”) and may either use
the vessel for transportation of his own goods or may sublet the vessel to a
sub charterer for a time or a voyage charter. The speed and fuel consumption
warranty would determine how the vessel is expected to perform and voyage
estimates/profitability calculations of the disponent owner will depend on
the parameters specified in the time charter party, under the clause termed
as “Description”. Thus these
parameters form the basis of the calculations that influence the business
decision. Typical
Speed and Consumption Warranty - An Example Typical Speed and Consumption Warranty
of a Time Charter party (Generally mentioned under the Description Clause): …Speed and consumption which Owners
guarantee vessel will maintain during the whole currency of this Charter
party, under good weather conditions: 1. Speed loaded about
14 Knots 2. Speed ballast about
14 knots 3. Type of bunkers IFO
380 cst (for Main Engine) 4. Consumption a. at Sea about
28 mt IFO + about 2 mt DO b. in Port idle about
2 mt MDO gear working per 24 hrs about 2.5
mt DO Good
Weather Conditions For clarity, it is also advisable to
include clarification of term “Good Weather Conditions”, usually with
reference to weather and sea conditions (e.g. Beaufort Wind Scale and,
perhaps Douglas Sea State) against which factors a vessel’s performance
should be measured. Beaufort Scale 3 - Wind Speed 7~10;
Gentle Breeze; Large wavelets, Crests begin to break, Foam of glassy
appearance, Perhaps scattered white horses; mean height of waves 3 feet. Beaufort Scale 4 - Wind Speed 11~16;
Moderate Breeze; Small waves becoming longer; Fairly frequent white horses;
mean height of waves 5 feet. Time charterers frequently bring claims
against owners for underperformance, which means that the vessel is not
complying with the speed specifications described in the charter-party.
Underperformance claims often go hand in hand with claims for “over
consumption” which means that the vessel is using more fuel per day than
specified in the charter-party. In order to defend these claims, Owners rely
heavily on accurate and comprehensive data collected by the Master and the
officers. Within the terms of a time charter, the
speed of a vessel will be related to a certain number on the Beaufort scale -
usually 4 - and the object of this is that the vessel should perform at the
prescribed speed with prevailing winds of scale 4 (four). Should she not
perform at this speed, then the charterer may make a speed claim against the
owners for non -performance. In order to check whether the vessel is
performing as described in the charter-party, the Master should use only
information acquired under good weather periods as specified in the
charter-party. The basic data that is required to be
gathered daily may comprise of factors such as particular sea state, changes
in course, effect of tidal waters and currents which are normally recorded,
on a watch by watch basis, in the vessel’s deck log book. Data recorded by the routing company can
provide expert evidence when a dispute arises about the effect of weather on
a voyage. These routing companies collect data from multiple sources and
determine the prevailing weather conditions enroute and suitably guide the
Master to take the shortest route, as one of its services. They also study
the effect of the weather on the vessel speed and thus as an independent
party, have an important say in the vessel performance, especially so if the
contract stipulates that in the event of a dispute, the opinion of a routing
company would be sought. The question as to whether the time
charterer has the right to appoint a weather routing company, in Society of Maritime Arbitrators Inc. New
York Arbitration Award No. 2125, it was held - “Because,
under a time charter agreement, the risk of delay due to weather is upon
Charterer, there is no question that Charterer has the right to nominate a
weather routing service of its choice, for its account. However, the Master
is not under an absolute obligation to follow the advice of any routing
service; he is the sole judge when it comes to deciding upon the best and
safest course to take from point of origin to destination, having in mind the
best interests of both Owner and Charterer and the safety of his vessel,
cargo and crew”. In case of a dispute, it is the weather,
which parties tend to see in a different light. When Time Charterers employ a
performance monitoring company to monitor vessel's performance, the
information on which such a company bases its evaluation may be e.g.
statistical material for a certain area rather than based on current, factual
information at the particular place and time and, hence, the conclusions
drawn, i.e. the performance details are bound to differ from vessel's log
book entries. “Absent
any qualifying or instructive language in the Contract, it must be accepted
that the parties intended to rely on the vessel to supply the weather data to
determine when the vessel was steaming under good weather conditions. This
does not mean that Charterers cannot produce evidence which could so impugn
the accuracy of the vessel's observations that any reasonable person should
question the integrity of such records and, therefore, if necessary, look to
other sources of weather information to determine periods of steaming under
good weather conditions. Charterers employed the services of Oceanroutes to
independently determine the wind, sea and current conditions prevailing at or
near the vessel's position and to express an opinion as to the effect these
conditions had upon the vessel's ability to steam at about 13 knots on a
consumption of about 33 metric tons IFO” (SMA Award No. 2005). [Clarification: “Absent any qualifying
or instructive language in the Contract” means absence of a clause which
prescribes that if there are discrepancies between vessel's log entries and a
performance monitoring company, then the information submitted by the latter
should be considered decisive] It has been seen that where the
discrepancies between the weather data as per the vessel’s records and that
reported by the weather routing company are not large, most panels will
accept the reports by the ship. In S.M.A.
award No. 2040 the panel commented as follows: "Under
most circumstances, where the differences are not major, most panels will
tend to accept the reports of the ship, as the Master and Officers are deemed
to be the best judges on the spot of actual conditions. A heavy burden is
placed upon Charterers to show that the ship logs are not reliable and should
be disregarded”. However, if it is found that the
disparity between the reports from the two sources is abnormal and the panel
finds any unusual trends in the ship’s records then it may scrutinize the
ship’s records in detail and may even find the reports from the weather
routing company more reliable. Referring back to the SMA Award No. 2040: “The
testimony and documentary evidence of OceanRoutes submitted by Charterer in
this case is detailed and shows that the ship's reports require a closer
scrutiny than usual as the disparity is too great to be considered as normal.
The Panel spent much time reviewing the figures and noted a pattern in the
logs to show adverse currents and winds consistently almost the entire time
at sea. The testimony of the weather expert in oceanography was convincing,
particularly in describing how the ocean currents are plotted and that they
are mostly regular in location and intensity. The Panel also was able to
determine that weather patterns reported by the ship were often at direct
odds in terms of wind direction to a degree that is most unusual. Certainly
there can be subjective differences between the estimates of wind force as
seen from the bridge of a ship and those estimates of a weather analysis,
based as they are upon reports from many ships and weather reporting stations
in a general area surrounding the ship's position. It is however quite
different to find a continuous series of directional differences. In summary,
the Panel was able to agree that the "fair weather" days reported
by OceanRoutes were, in this case, more reliable”. Effect
of the word “about” It is generally accepted that the word
“about” will give Owners a 0.5 knot margin. If, for example, the vessel is
warranted to perform at about 14 Knots, then there will be no breach of the
warranty provided the vessel attains a speed of 13.5 knots. Although this
“rule” seems to be applied invariably in London arbitrations, it is not
actually the Law. The law says that the extent of the margin “must be
tailored to the ship’s configuration, size, draft and trim etc.” (The Al Bida
[1987] 1 LLR 124). In respect of bunker consumption, there
is also no fixed margin according to English Law. However, it seems to have
been generally accepted in the Industry that a margin of 5% will be allowed
for “about” (London Arbitration 12/85 - LMLN 158; London Arbitration 2/87 -
LMLN 188). However it was held in SMA Award No. 2040 that - “This
Panel does not believe that there is any inherent or automatic right to
calculate bunkers by adding 5 per cent. to the figure warranted. There is no
satisfactory precedent, which requires that the Panel give such an allowance.
The principle is well established that after making due allowance in
assessing the deficiency (if any) in speed warranty, bunkers are to be
calculated on the warranted daily figure for the actual time at sea as
compared to the consumption at what should have been the voyage duration. Any
difference is reflected in the final accounting. The word "about"
in describing bunker consumption is not another 5 per cent. on top of that
allowance for speed, which is intended to allow for vagaries in currents,
short sea passages and other minor effects of the unknown in navigation procedures”.
This would mean that the arbitrators
declined to give the Owners a “double benefit” of 0.5 Knots and 5%
consumption. In a London Arbitration (reported in LMLN. 233, page 4), the panel had to
decide upon the effect of the word “about” as included in the detailed
Speed/Performance Warranty. The charterparty provided: “…..economic speed about 11 knots on 4.7
mt IF 180 - speed/consumption about 10.0 knots on about 3.7 MT about 10.5 knots on about 4.2 MT about 11.0 knots on about 4.7 MT about 11.5 knots on about 5.5 MT about 12.0 knots on about 6.6 MT Although the charter was thus highly
specific as to the vessel’s performance capabilities, the arbitration
considered nevertheless that effect must be given to the word “about” because
the parties had expressly agreed to it. However, they limited the allowance
to a quarter of a knot rather than the
usual half a knot given by London arbitrators, firstly because several
speeds were written into the charter party, and secondly because the speeds was
already much lower than that usually stipulated in fixtures of larger bulk
carriers. It is interesting to note here that the
Tribunal also held that the allowance
for fuel consumption should be limited to and reduced in accordance with the
reduction in speed allowed by the word “about”. Thus assuming that the
vessel was to steam at economic speed (11 knots on about 4.7 mt of fuel oil),
the allowance for “about” not only brought the warranty speed down by a
quarter of a knot to 10.75 knots but also reduced the permissible fuel
consumption to 4.45 mt, thus proportionate to the charter party figures. However as a general rule the warranted
fuel consumption would not be reduced simply because the speed obtained was
only CP Speed minus 0.5 Knots, but this would depend upon the actual wordings
used in the Charter Party. In the normal case where the warranty is “about V
Knots on about Q mt fuel oil per day”, the plain meaning of the words is that
the vessel will attain a speed of at least V-0.5 Knots on “about Q mt” and
there is, normally, no reason to imply a proportional reduction in the bunker
consumption. Evaluation
of under performance - Precedents In one of the decisions (The Didymi
1988.2 LLR. 108), the court had established a two-stage test for determining
loss resulting from under performance. This required, firstly, an assessment of
under performance based on good weather conditions. Once this was established
the second stage required an assessment of the under performance in all
weather conditions, with the necessary extrapolations calculated by an
expert. The Court of Appeal, while endorsing
above approach further clarified the position by the following three-stage
approach: “….
First, assess the vessel’s performance in good weather conditions as defined
on all sea passages from sea buoy to sea buoy, excluding altogether any
period of slow steaming at charterers’ request. Secondly,
if a variation of speed from the stipulated norm is shown, that variation
should be applied with the necessary adjustments and extrapolations to all
sea passages from sea buoy to sea buoy and all weather conditions, but
excluding the periods of slow steaming at the charterers’ request. Thirdly,
if there is a variation of consumption from the stipulated norm, that variation
should be applied, with the necessary adjustments and extrapolations to all
sea passages from sea buoy to sea buoy and all weather conditions, but
excluding the periods of slow steaming at the charterers’ request”. Overall then the speed/performance
clause to all weather conditions, only excluding the slow steaming where
speed reduced at charterers’ request. Speed
Claim Calculations - An example Vessel Name: MV Example CP Speed: about 14.0 Knots CP Fuel Consumption: about 24 mt Vessel undertakes a voyage from Port Top
to Port Bottom about 8000 Nm apart, taking 655.7 hrs to complete the voyage
with an average speed of 12.2 Knots. On the days when the weather was good,
it is observed that the vessel did not perform as warranted. Charterers had
appointed a weather routing company and it is found that even the ship’s
records showed under performance on the fair weather days. Thus the deficiency in performance is to
be applied for the complete passage after duly taking effect of weather into
account for calculations of the Performance Speed. As per weather routing company, the
calculated weather factors are as: Weather Factor = -0.6 Knots Current Factor = + 0.4 Knots (Calculation of these factors is a
subject in itself and is not being considered here in detail). Basis above and interpreting “about” as
allowing 0.5 Knots to get an effective speed of 13.5 Knots (when CP speed is
14.0 Knots), we achieve the “Performance Speed” as follows: Performance speed = Effective Speed +
Weather Factor + Current Factor =
13.5-0.6+0.4 =
13.3 Knots. Chartered Time (basis Performance Speed)
= 8000 Nm / 13.3 Kn =
601.5 hrs Actual Time Taken =
655.7 hrs Computed time lost = 54.2 hrs.=2.2583
days Speed Claim Amount = US $ 9,000 x 2.2583
= US
$ 20,324.7 Where US $ 9,000 is the daily Charter
Hire rate. Above is an example how claims can arise
in such cases. Higher consumption can also result in expensive claims. An
actual case (SMA Award No. 2040)
–
In assessing the degree of
non-performance, the panel adopted the method described by OceanRoutes,
making allowance for favorable currents, adverse winds and the customary half
knot to cover the word "about" in the warranted description. The
basis to determine the warranted minimum speed for the initial C/P has been
set at 13.7 knots. The Panel found from the documentary evidence that the
ship failed to perform at that speed on "good weather" days and
assessed the degree of failure as set out below. For the first leg of the voyage
Inchon/Japan/Hong Kong/ Singapore, OceanRoutes was not employed and only the
vessel's log is in evidence. For this period, charterer has impliedly used
the same OceanRoutes formula to this leg in asserting its claim. On the last leg of the voyage, Cape
Town/Singapore, OR report shows performance better than the adjusted warranty
(10.1 knots), but charterer has made no claim for speed deficiency on that
leg, limiting itself to a claim for over consumption of fuel oil. The Panel decided that, under the terms
of this C/P, the correct method of determining performance is to examine all
the sea passages during the period of time charter and apply any deficiency
to the entire period. However, in making its calculations, the Panel gave
Owner due allowance for the minimum warranty on those passages where a
deficiency occurred, and on the last leg where the performance actually
slightly exceeded the C/P warranted figure, gave credit for the saving of
time based on the C/P figure rather than on the OR formula. This method was
adopted as being equitable to both parties within the terms of the C/P and
the custom of the trade. For the first leg the weather conditions
were taken from the ship's log, but on all the subsequent legs OR weather
reports were considered more reliable. In all cases only those days where the
weather was Beaufort Force 4 or less were considered, thus reflecting the
intent of the parties as expressed in the relevant clause the Charter Party. The results showed the following: A.
Westbound.Inchon/Japan/HKG/S’pore 1.57 k deficient
3.11 days lost at $7,150/day
$22,236.50 B.
Lagos/Port Harcourt/Lagos 6.07 k deficient 5.44 days lost at $ 5,000/day $27,200.00 C.
Eastbound. Lagos/Cape Town 2.6 k deficient 1.86
days lost at $ 5,000/day $
9, 300.00 D.
Cape Town/Singapore 0.35 k over 0.37 days gained at
$ 5,000/day $(1,850.00) Net: Awarded to Charterer 10
days lost due to underperformance
$ 56,886.50 Avoiding
the Underperformance Claims ·
Avoid
clauses, which prescribe that if there are discrepancies between vessel's log
entries and a performance monitoring company, then the information submitted
by the latter should be considered decisive for the reasons mentioned in the
above text. ·
Maintain
proper and correct records during the voyage. ·
Substantiate
the logging of “Adverse Current, Head Swell, Heavy to Moderate Swell” etc. by
known/accepted documents/publications. ·
Immediately
investigate and advise the Head Office if any indication of underperformance
becomes apparent. ·
During
“fair weather days”, pay additional attention to vessel performance to ensure
that vessel is performing better or as per the Speed/Fuel warranty. Careful monitoring of the Vessel
Performance by the Senior most officers on board the vessel and timely action
can result not only in savings but also in enhancing the reputation of the
Owner/Operator and better the claims record. References: 1. Institute of Chartered Shipbrokers Course Material 2. Sea Venture (The Steamship Mutual Underwriting Association (Bermuda) Limited Publication) Vol 11, Page 70, Vol. 12, Page 50/51. 3. BIMCO Bulletin 6/84, 3/85, 4/85, 2/86 This article is presented
purely from an academic point of view only and the author is not responsible
for any loss or damage sustained by following the suggestions/views
whatsoever presented in this article. ( Mr. Jagmeet Singh Makkar, FICS is Honorary Secretary of The Institute of Chartered Shipbrokers, Hong Kong Branch and is working as General Manager of KC Maritime Limited, Hong Kong )
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