Claims and Legal Volume 1: Number 1: March 2009
1. CHARTERER’S RESPONSIBILITY TO LOAD STOW AND SECURE UNDER THE SUPERVISION OF THE MASTER
2. BUNKER CLAIMS – ISSUES TO CONSIDER
3. CHANGING REGULATIONS; THE EFFECTS ON TIME CHARTERS
CHARTERER’S RESPONSIBILITY TO LOAD STOW AND SECURE UNDER THE SUPERVISION OF THE MASTER
Under a time charter party (such as NYPE form, Clause 8) the Master may have to supervise charterer’s loading of the vessel. This article considers what constitutes ‘supervision’ and how the word affects the Master’s duties and rights.
Even before loading has begun the Master often exercises his supervisory function under the charter party when he reviews the stowage plan proposed by the charterer; but when does a Master’s action become more than supervision? To what extent can the Master intervene and does his intervention change his supervisory role under the charter party and impose liabilities on owners that they would not have had otherwise under the charter? What form should that intervention take to protect the owner’s position under the charter party?
It is important to distinguish the different forms in which a Master may intervene in the charterer’s stowage and securing arrangements. The Master may put charterers on notice that he considers the stowage unsafe without actually requiring that the stow be rectified. This would have little effect and charterer’s responsibilities would remain unaltered. The Master may advise charterers that the stowage is unsafe and demand that it be rectified but without requiring the stow/ lashing to be undertaken in a particular manner, i.e. leaving the charterers to propose an alternative stow/lashing arrangement which may be acceptable to the Master. Alternatively, the Master may advise charterers that the stowage and lashing arrangements are unacceptable and require them to be changed in a specific way.
It is settled law (Court Line Ltd v Canadian Transport Company Ltd HL (1940) 67 Ll. L. Rep. 161) that a charter providing for cargo to be loaded, stowed and secured by charterers under the supervision of the Master gives the right to the Master to intervene when owners face a potential liability. Clearly where bills of lading are issued for and on behalf of the Master or owners, such a liability is likely to be incurred by the owners. Arguably, in circumstances where charterer’s bills of lading are to be issued, the possibility of a noncontractual owners’ liability still exists; indeed the concept of charterer’s bills of lading does not exist in many jurisdictions so that the imposition of cargo liabilities upon owners is still likely.
As the charter party in this case provided the Master with a right to intervene, there would be no breach of the charter when he does so. Accordingly, it is unlikely that the vessel could be legitimately put off-hire in circumstances where delay arises by virtue of the Master’s insistence that cargo is re-stowed or re-secured.
The Master does not have absolute discretion as to what is and is not proper stowage and/or securing. It is open to the charterers to dispute with the Master what is a proper stowage. Should they do so, it is useful for the Master to obtain a second opinion, normally from a P&I Club surveyor. Ultimately, however, what is and is not a safe stow would be determined by the court on the factual evidence and expert opinion.
‘Court Line’ also established that supervision by the Master does not alter the responsibility for stowage and securing – which remained with the charterers – unless that supervision is active. This active supervision or intervention formed the first of the two ‘Court Line exceptions’. Charterers have to prove that the bad stowage was caused by the Master’s orders (and that the charterer’s proposed stowage would not have caused damage) in order to shift liability for the operation to owners. The second Court Line exception arose where ‘the loss [that] occurred is attributable to the want of care in matters pertaining to the ship of which the Master was (or should have been) aware and the charterers were not’, for example, the stability characteristics of the particular ship.
Actual supervision or intervention
With regard to the first of the ‘Court Line exceptions’, what is ‘actual supervision or intervention’? A recent arbitration finding provides helpful illustration.
In the arbitration, (2008) 752 LMLN 3(2) – a case involving the collapse of a cargo of steel pipes – the arbitrators were asked to consider whether the signing by the Master of a certificate presented to him certifying that the cargo had been loaded and secured in accordance with the stowage plan under the Master’s approval and supervision, raised an estoppel preventing the owners from asserting that the collapse of a stow arose through the charterer’s negligence. Charterers counter-claimed for off-hire whilst the vessel returned to the load port to be re-stowed. The arbitrators held that the approval of the stowage plan did not constitute the giving of positive advice as to how the stowage should be undertaken and was not an intervention. As such, the signing of the certificate would not be sufficient to reverse the liability for stowage as provided in the charter. The charterers also alleged that the Master had failed to comply with a charterer’s letter requiring that he check and adjust the lashing and securing of the cargo at intermediate ports.The arbitrators found that the stow failed because of its own inherent unsatisfactory qualities and not because of any failure by the Master to comply with such a letter. Further, such a letter could not vary or add to the obligations owed by the owners to the charterers. In any event the letter gave no indication that anything was required of the Master more than the customary practice of re-tightening lashings during the voyage. The letter could not impose upon the crew the additional duty to enter holds during the voyage for purposes of tightening the lashing.
Clause 32 of the charter party provided that the vessel would be off-hire if it put back whilst on a voyage as a result of an accident or breakdown. The clause was interpreted by the arbitrators as not applying in this case as the collapse of the pipe stow could not be considered an‘accident’, but was the inevitable consequence of the charterer’s improper stowage and securing. The charterers claim for off-hire was therefore defeated.
When a Master, believing that a cargo has been improperly stowed and secured by charterers, requires that that stow be corrected and that the stow be performed in a particular manner, he can be considered as having positively intervened. In the event that that stow collapses or otherwise becomes deficient and damage is caused by virtue of the intervention, the responsibility under the charter party would be reversed and the loss would become the responsibility of owners.
It is open to the Master to notify charterers that a stow is defective and invite them to submit alternative methods of stowing and securing for his approval. In such a way it is expected that responsibility for that stow would not then shift from the charterers to owners. (The Association can provide a pro-forma wording putting charterers or their stevedores on notice that their stowage is deficient – (please contact rweditor@triley.co.uk).
Similar questions have been considered in respect of the stowage of fully cellular container ships. The ER Hamburg, (2006) 2 Lloyd’s Rep. 66, confirmed that the Master’s approval of the stowage plan did not constitute an intervention. The charterer’s alleged that the chief officer, by requiring amendments to the stow plan, took it upon himself to control the charterer’s proposed stowage arrangements and to approve the final stow plan as his own. Arbitrators found that the mere fact of reviewing the stowage plan and requesting a change did not constitute taking control of the stowage and the first Court Line exception did not apply.
The charterers argued that, if the Master was not deemed to have positively intervened in the stow, then he had a duty to intervene to correct the stowage where the stowage endangered the ship and rendered it unseaworthy. If he did not intervene then the owners were liable for the loss. The arbitrators decided they would follow The Imvros, (1999) 1 Lloyd’s Rep. 848, and found that, as between the owners and the charterers, the owners would not be liable for want of due diligence in making the vessel seaworthy where that lack of due diligence arose from improper stowage which was the charterer’s responsibility under the charter.
The second Court Line exception was also addressed in The ER Hamburg; a case involving a fire/explosion of a cargo of chemicals. The charterers argued that only the chief engineer had knowledge of which bunker tanks would be heated during the voyage. In this case, whether or not any particular stow was next to a source of heat would be known by the Master but not by the charterers. Owners responded stating that the charterer’s stow planner had all the information necessary and in particular he knew the location of the bunker tanks so that the stow would comply with the IMDG Code. Arbitrators agreed with the owners.
Clearly a Master must always have the safety of the crew and ship foremost in his mind and has a duty to his owners and the crew to intervene and prevent any stowage/securing procedures which put the ship at risk of serious damage and/or the crew at risk of injury, irrespective of any charter party obligations.
BUNKER CLAIMS – ISSUES TO CONSIDER
Introduction
The supply of bunkers is of course crucial to the operation of a ship. It can affect the fortunes of an owner trading for his own account as well as a time charterer with a contractual obligation to supply bunkers.
In both cases, if off-specification bunkers are supplied to a ship then owners/charterers (as buyers of the bunkers) may have a claim against the bunker supplier. Where there is a time charter, inevitably there will also be scope for a dispute between the owner and the charterer.
It is important to realise that bunkers may be off-spec not just in terms of their suitability for use in the engine but also in terms of their compliance with environmental regulations (e.g. the requirement for low-sulphur content bunkers under SOx/NOx regulations and in the SECAs in the North Sea and Baltic Sea).Noncompliance with such environmental regimes can incur significant penalties on the owner (and also questions of club cover).
Types of claims
If bunkers are off-spec, claims can include: a) The value of the off-spec bunkers; b) Costs incurred in removing off-spec bunkers (including possible cleaning of the vessel’s bunker tank(s)/lines); c) If the bunkers have been burned, any resulting damage to the ship’s engines/filters; d) Loss of time – which can include time lost attributable to any of (a)-(c) above.
Off-spec and causation
In determining whether bunkers are off-spec, the obvious starting points are, (a) the charter party’s express requirements e.g. RMG 35 and (b) the terms of the bunker supply contract – basically what was meant to have been supplied?
However, it is important to bear in mind that the fuel specification in the charter party may not be the whole story.
First of all, the type of bunker testing that is routinely performed prior to the burning of bunkers is only designed to deal with a standard list of properties. It is not designed to pick up unexpected contaminants. (Indeed this may be impossible to do.) Many charter parties nominate the organisation which has to approve bunkers in advance of their being burned (e.g.DNV or Lintec).The nominated organisation will usually compare the bunkers to one of the grades contained within ISO 8217 but, to use a recent real example, cannot be expected to detect surprise substances such as nail varnish. (It is noteworthy that a dispute may arise out of the results of testing, with ISO 8217 containing permissible margins of error and reference to ‘repeatability’ of tests).
Second, even if the bunkers do comply with the specification and contain no unexpected substances, English law still requires them to be fit for purpose i.e. fit for burning in the given engine. This is important in some cases.
Third, the claimant must establish a chain of causation between the properties of the bunkers and the loss or damage suffered. As a matter of technical evidence, this can be difficult. Recent English arbitrations have indicated a softening of approach; for example, tribunals may find that where all other potential culprits have been excluded, the fuel must be to blame for engine problems. However, this is not certain and it is therefore prudent to work on the assumption that the burden of proof rests with the claimant to show breach, causation and loss.
Experts
These three hurdles can complicate bunker claims considerably.The necessary technical investigations can be very expensive.With that in mind, it is wise to consider enlisting expert assistance at the earliest opportunity after problems with bunkers first manifest themselves. For example, experts may need to consider such questions as:
- the properties of the bunkers that were in the tanks before the subject bunkers;
- the segregation (or otherwise) of the subject bunkers from other bunkers;
- the competence of the crew;
- the filters’ fitness for purpose;
- the previous state of the engine; and
- whether the bunkers can still be burned but with steps being taken to minimise any adverse impact on the vessel’s engine/filters etc.
Bunker supplier
Where claims are made against a bunker supplier, one additional hurdle is the very short claims notification period which can form part of that supplier’s standard terms and conditions. The claimant may commonly have as little as one or two weeks from the stem date to notify a claim in writing to the supplier. Although such provisions may not always be legally enforceable, experience suggests that their existence in the contract is often overlooked by the purchaser.
The way forward?
With all of the above in mind, Members might wish to consider whether anything can be learned from the regulatory regime in Singapore, one of the world’s leading bunkering centres. Following earlier bunker scandals, since 1997, the Singapore authorities have been licensing bunker suppliers by reference to their CP60 regulations, which have significantly reduced bunker disputes by imposing requirements on documentation and equipment, including tank calibration. The Singapore authorities carry out spot checks to enforce this regime.
In 2005, the CP 60 regulations were updated to include:
- a pre-delivery meeting to clarify the lines of communication and go through a pre-delivery checklist;
- improved safety, health and environmental provisions;
- a tightening-up of the bunker delivery process and improved sampling requirements;
- improved quantity accuracy;
- line purging procedures;
- restrictions on the amount of blowing allowed;
- stock tank record keeping regulations;
- improvements to the accuracy of bunker sampling;
- delivery notes to comply with MARPOL Annex VI;
- onboard blending guidelines;
- a clause on ethical practices and professionalism;
- importantly, a minimum fuel sample size of 750 ml for repeated tests and 600 ml for one-off tests. In our experience, it is surprisingly common for samples to be too small. Adopting these minimum sample sizes, wherever in the world bunkers are taken, is a simple step which we recommended Members to take.
In 2008, the CP 60 regulations were updated again and merged with an updated code of practice for bunker surveyors to form the SS 600 regulations.
See link
| http://www.singaporestandardseshop.sg/data/ECopyFileStore/080905173444 Preivew%20-%20SS%20600-2008.pdf |
The new provisions are intended to come in to force later in 2009.The changes will include:
- all bunker delivery notes must state that the bunkers meet IMO air pollution guidelines;
- enhanced sample integrity – improving the technical requirements for sample bottles and security seals; and
- the standardisation of bunkering documents including the bunker delivery note, stock movement logbook etc.
We hope the above has been an informative introduction to bunker claims.
CHANGING REGULATIONS; THE EFFECTS ON TIME CHARTERS
The obligation of owners to provide a seaworthy ship exists, either impliedly or more commonly expressly, in every charter party. It has long been established that the scope of the obligation extends beyond the physical condition of the ship, to include, for example, the need for the owners to provide a competent crew and for the vessel to hold certain documents and certificates (such as a fumigation certificate).
Further, time charters for the carriage of specific cargoes, such as oil, usually have clauses whereby the owners undertake that the vessel will be in every way fit for her service and have on board the necessary documents required to enable her to perform the charter. This will usually be a continuing warranty, namely one that imposes the obligation on the owners to maintain the vessel in her contractual condition or restore the vessel to that condition. There will often also be an additional obligation to comply with pollution conventions and international regulations.
The Court of Appeal, in the case of Golden Fleece Maritime Inc and Another v St. Shipping And Transport Inc (The Elli and the Frixos) [2008] 2 Lloyd’s Rep. 119, has recently upheld the view that the warranty of ‘…In every way fitted for service…’ applies not only to both existing physical and legal fitness, but also to future changes in regulations made after the charter has been concluded and the vessel delivered.
The case concerned the charter of two single hull tankers, which were chartered using the SHELLTIME 4 form. Both charter parties contained the usual warranties that the vessels were… ‘in all respects eligible to trade under applicable conventions, laws and regulations for trading to and from the ports specified…’
and further that each vessel ‘…does, and will, fully comply with all applicable convention, laws, regulations and ordinances of any international, national, state or local government entity having jurisdiction including….Marpol 1973/1978 as amended and extended…’
While the tankers were both single hull, all the cargo tanks were protected on the outboard side by wing ballast tanks which formed a ‘double-side.’ Aft of the cargo tanks in each vessel were two slop tanks, only a part of each was protected on the outside by bunker tanks.
At the time the charters were agreed and the vessels delivered, both vessels complied with MARPOL. Changes to MARPOL were brought into effect on 5 April 2005, although an exemption was available, under Regulation 13(5), for double-sided vessels. Both the owners were aware of the changes, prior to the fixtures, but they both believed their vessels would be considered as double-sided and therefore given the exemption.
The changes provided that, inter alia, fuel oil could only be carried in double-hulled vessels. Regulation 13(5) provided an exemption, for this to apply, any cargo tank, including slop tanks, were to be surrounded by spaces ‘not used for the carriage of oil.’ Due to the presence of the bunker tanks at the aftmost section of each of the two slop tanks, the vessels’ Classification Society did not grant the exemption.
The failure of both vessels to obtain the exemption meant that they failed to comply with MARPOL regulations.
It was a matter for the Court to decide whether the failure of the vessels to comply with the new provisions of MARPOL for double-hulled vessels meant that owners were in breach of charter after the regulations came into force.
Even though the regulations came into force after the charters were concluded, it was held by the court that the owners were in breach of the warranty that the vessel(s) ‘…do(es), and will, fully comply with all applicable conventions, laws, regulations ordinances…including, but not limited to…MARPOL 1973/1978 as amended and extended…’
This resulted in the vessels being unable to carry fuel oil for the remaining part of the charter. The vessels could then only carry less lucrative crude oil and similar low grade products. The charterers withheld hire, which the owners tried to recover.
The Court of Appeal, in upholding the earlier Commercial Court decision, found that the owners’ continuing obligation in SHELLTIME 4 (and similar standard-form time charters) goes beyond the need for the vessel to be physically seaworthy and also covers wider matters, such as legal and regulatory matters, which also affect the vessel’s ability to perform the service required.
Whilst this case is dependent on the facts, Members should be aware of the need for their vessels to comply with existing regulations as well as new regulations introduced during the period of the charter. This is particularly relevant when contemplating long term time charters.
