Risks, not rewards, of sub-letting

A recent London arbitration illustrates the risks a charterer can face when fixing a vessel on a time-charter, and then sub-letting it on a voyage charter.

The vessel in question was chartered on a NYPE form and then sub-chartered on a Gencon form, for a voyage from Argentina to Kenya.

During the time-charter but prior to the voyage charter, the vessel sustained hull damage as a result of contact with a berth in Uruguay. The tribunal found that the damage was not the fault of the vessel.

The vessel arrived at Necochea on June 24 and tendered notice of readiness 1 at 0600 hrs. At the time of arrival the intended loading berth was unoccupied but due to bad weather and strikes the vessel was prevented from berthing until July 4. Allegedly there was also no cargo available.

The vessel was instructed to berth on July 3, however, she was incapable of loading until repairs were carried out. As a result the terminal refused to allow the vessel to berth. The repairs were completed on July 10 at a lay-by berth. At this point the Master tendered NOR 2.

The tribunal needed to determine three issues: firstly whether the vessel was off-hire from her arrival at Necochea on June 24, until the completion of repairs on 10 July; secondly, when laytime began to count; and thirdly, whether the charterer was entitled to claim damages from the owner due to the hull damage.

Off-hire decision

On the first issue of off-hire, Clause 15 of the NYPE form provided that payment of hire shall cease for time “thereby lost” if damage to hull occurred and the “full working of the vessel” was also prevented. Accordingly, the vessel would not go off-hire unless it was incapable of performing the service required of it by charterers.

Hence the tribunal found that the vessel remained on hire while waiting at anchorage, despite the hull damage. She eventually went off-hire on July 4, when the port re-opened and she was instructed to berth, but berthing was refused by the terminal.

On the second issue of commencement of laytime, the charterers was liable to pay hire until July 4 and could not look to the sub-charterer for demurrage accruing during that period because both NORs were found to be invalid for the following reasons:

• NOR 1: the vessel was not physically ready to load due to the hull damage.
• NOR 2: being a “berth charter” the vessel needed to be at the loading berth when tendering NOR, which she was not.

The default position therefore applied that laytime ran only from the commencement of loading.

On the third issue, on the charterer’s claim for damages, the charterer sought damages from the owner on the grounds that the hull damage prevented them from claiming demurrage from their sub-charterer, claiming damages for detention from the sub-charterer when the cargo was unavailable, and a claim for “consequential loss of time” because of the delays.

Breach claim

The charterer argued that the hull damage constituted a breach of clause 7, on the grounds that the whole reach of the vessel was not available to them, and clause 8, for failing to prosecute the voyage with utmost despatch. However, the tribunal considered there could be no breach of clause 7 when the unavailability of the vessel was due to the owner doing what was required, i.e. repairs.

As for clause 8, it was held that the charterer had to show fault on the part of vessel resulting in a failure to proceed with utmost despatch, which was not possible.

The tribunal also found that there was no consequential loss attributable to any breach of charter or fault of the owner. The delays after the completion of repairs were due to another vessel occupying the berth.

Owners and charterers need to consider carefully during negotiations the provisions of the charterparty. In particular, a charterer in the middle of a contractual chain is less likely to be the party bearing the loss of delays if contracting on back-to-back terms.

Rory Grout is senior associate at HFW, specialising in charterparty and bills of lading disputes. He has also been involved in notable large scale salvage, grounding and collision matters as well as marine insurance litigation. Rory can be contacted on +44 (0)20 7264 8198 or rory.grout@hfw.com.