London Arbitration 15/24

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A vessel chartered under an amended GENCON form was to transport scrap metal from Venezuela to Turkey.  No loading occurred, and the charter was canceled.  The dispute centered on Owners’ claim for damages due to the fixture’s cancellation and Charterers’ counter that Owners did not act in good faith to secure substitute employment. Also in dispute was the alleged mismanagement of funds for river tolls to the load port and the Shippers’ cancellation of the charterparty with Charterers.

Owners originally sought US$956,658 as repayment for lost profits, ballasting, bunkering, and repositioning costs after the cargo was left unloaded. Experts reduced the claim to US$667,980.79, which included US$191,893.22 allocated in lieu of vessel redelivery. Charterers’ expert countered with US$299,901, alleging that Owners were at fault for the loss for failing to secure substitute employment promptly.

Voyage Details

Owners began the time charter on Feb. 3rd and requested confirmation of funds to cover load port costs at Orinoco from the Charterers on Feb. 4th. Charterers appointed agents at Orinoco on Feb. 5th, while Owners gave a one-day ETA notice of arrival. Owners then sent a notice of liability “for all delays, costs incurred so far…” and requested Charterers appoint new agents as the initial appointees had withdrawn.

A series of exchanges about changing the load port ensued, but they were inconclusive due to a lack of cargo availability elsewhere from Shippers. On Feb. 6th, the master tendered a notice of readiness to Owners, which was communicated to Charterers. By Feb. 7th Shippers terminated the charter with Charterers, who then communicated the voyage cancellation to Owners, citing force majeure. Shippers claimed Charterers failed to deposit funds into the disbursement account in advance, which caused delays and problems with local authorities.

Following the cancellation, Owners attempted to re-employ the vessel but did not accept a charter from Recalada to Indonesia until March 5th. The vessel was redelivered to the registered owners on May 30.

Relevant Clauses

The charterparty was contained in a fixture recap email and included the following:

– CARGO 21,500 MTS SCRAP …

– LOADPORT [the named loadport], VENEZUELA, YYY BERTH … PLUS TOP OFF AT MILE 44 OF ORINOCO RIVER …

– LAYCAN FEB 5-10, 2020

– DISCHPORT [the named disport], TURKEY …

– CHRTS AGENTS BENDS WITH FREE D/A’S AT LOAD PORT INCL ORT FOR CHRTS ACCT … [Charterers’ agents at both ends with free disbursement accounts at load port including Orinoco river tolls for charterers’ account …]

– Charterers have to prove agents is put in funds for full da’s at load berth and mile 44 plus Orinoco river tolls…

– NOR AT LOADPORT TO BE TENDERED ON ARRIVAL TO [the loadport]…

– OWISE AS PER CLEAN GENCON 94 CP (SEE ATTACHED).”

NOTE: Part I of the standard printed Gencon form had Box 12 with the rubric “Cargo” and Box 17 with the rubric “Shippers/Place of business(Clause 6),” which dealt primarily with laytime.

Frustration of Charterparty

Charterers claimed frustration of the charterparty stating the fixture was only for a cargo to be provided by the named shippers.  The tribunal rejected this claim, asserting that the recap had to be read in conjunction with the Gencon form, which clearly gave a place for the shippers to be named (Box 17).  Thus, the cargo was not linked to a specific supplier, and Charterers were obligated to provide scrap metal cargo, regardless of whether their intended supplier could secure the cargo.  The tribunal ruled Charterers were in breach of the charterparty for failing to provide cargo even before the cancellation and claim of force majeure.

Implied Obligation of Good Faith

Charterers argued there was an implied term mandating the Owners and master to act in good faith regarding communication between parties, cooperation for the sake of the voyage, and adherence with the charterparty. Charterers asserted that Owners breached this good faith, claiming AIS data showed the vessel was not near the load port but instead in Itaqui. The tribunal called into question the integrity of the AIS data, and it was later proved that the vessel had arrived near Orinoco on Feb. 6th or 7th. 

Charterers then claimed the NOR tendered by the vessel was at the mouth of the Orinoco River, not at the load port.  This claim was deemed inconsequential by the tribunal for the charterparty required Charterers via Agents to ensure Owners received the funds to pay river tolls en route to the load port. The lack of funds required the vessel to remain off the mouth of the river.

Since Charterers were not acting in accordance with the charterparty, they were at fault for failing to ensure the funds for the river tolls were distributed.  The tribunal ruled that there was no basis for the charterers to treat the owners as being in breach of contract; Rather, it was Charterers’ own breach through the cancellation that ended the fixture. 

Cancelling Date

Charterers then argued that Owners were not entitled to damages because the vessel could not have reached the load port by the cancellation date.  They based their argument on Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1970] 2 Lloyd’s Rep 43. 

The tribunal ruled the vessel had more than enough time to reach Orinoco before the cancellation date. Charterers persisted, arguing that delays at Orinoco were the Owners’ fault; however, it was decided that the Charterers’ failure to make necessary payments caused the delay.

Claims

Owners’ lack of primary evidence made arbitration reliant on expert evidence.  The tribunal criticized the Owners’ failure to fix another voyage, citing compelling evidence that other employment opportunities were available during this time. 

Owners initially claimed US$965,658 for ballasting, bunkering, and repositioning costs. Owners’ expert examined the claim and:

  • Reduced the claim to US$667,980.79
  • The reduction included $191,893.22 to head owners for not redelivering in the Atlantic
  • Determined damages be calculated based on the lost profit of the terminated charterparty less a set portion of the profit on the substitute fixture.

Charterers’ expert countered with a claim of $299,901, claiming Owners failed to act reasonably to mitigate the losses.

Decision

Owners’ burden of proof was to prove their loss, which was difficult without sufficient factual evidence.  Charterers’ burden of proof on was to show Owners failed to reasonably their mitigate the loss resulting from the cancellation.

The tribunal reflected that upon a fixture cancellation, most owners would earnestly seek substitute employment.  Based on the evidence provided by Owners, only 9-10 possible fixtures were worked, which the tribunal considered lower than normal, based on the market where the vessel was located.  In addition, as time progressed and the likelihood of obtaining a good return decreased, Owners appeared to lack urgency to secure a fixture.

With evidence that other fixtures were available to the vessel, the tribunal concluded that the delay in obtaining a substitute fixture could not fully be explained. 

Award

The tribunal ruled that Owners did not act reasonably in their mitigation efforts; therefore, their claim failed. However, following an appeal to the English Court, the decision was remitted back to the arbitrators. The High Court decided the tribunal had not ruled correctly on the law of mitigation and directed the arbitrators to assess and award the damages the Owners would have recovered had they acted reasonably in mitigating the loss.

Thus, the High Court ruled the $191,983.22 that Owners sought as a credit back to head owners for the redelivery was not directly related to Charterer’s breach and should be awarded.  The tribunal was directed to reconsider the case and make a new award.