London Arbitration 9/25

The vessel was time-chartered on an amended NYPE 1993 form with additional clauses for a one-trip charter “via ECSA to Persian Gulf–Japan range (intention Iraq) with cargo of grains in bulk (intention soybeans).” Hire was fixed at US$20,000 per day. The charter contained the usual clauses requiring safe berths, safe ports, and compliance with charterers’ orders, together with an off-hire provision.  Relevant clauses are as follows.

Clause 8(a) of the charterparty provided that the master, though appointed by the owners, was under the orders and directions of the charterers as regards employment and agency.

Clause 17 “Should the Vessel deviate or put back during a voyage, contrary to the orders or directions of the Charterers, for any reason other than accident to the cargo …, the hire is to be suspended from the time of her deviating or putting back until she is again in the same or equidistant position from the destination and the voyage resumed therefrom. All bunkers used by the Vessel while off-hire shall be for the Owners’ account.”

On redelivery, the owners claimed a hire balance of US$56,598.25. The charterers resisted, asserting that the vessel had been off-hire for 2.396 days when she stopped outside the discharge port in the Persian Gulf at the head owners’ direction. The dispute proceeded under the LMAA Small Claims Procedure before a sole arbitrator.

On 4 October, a day before arrival at the discharge port, head owners received a communication from the unpaid shippers, titled “URGENT NOTICE FROM UNPAID SELLERS OF THE CARGO.” The notice asserted that the buyers had failed to pay, that the shippers remained holders of the original bills of lading, and that discharge should only be made to them or their nominee. The notice warned that delivery to others would expose the owners to liability for the entire cargo value (US$16.8 million).

That same evening, the master informed both owners and charterers that the vessel had stopped outside the port in light of the shippers’ notice and awaited instructions. On 6 October, charterers ordered the vessel to proceed to the port and anchor there, emphasizing that the notice related only to delivery, not to entry or anchoring.

Meanwhile, charterers had issued owners with a standard International Group of P&I Clubs LOI, requesting discharge to the notify party without presentation of bills of lading, and indemnifying owners against consequences. Owners passed a back-to-back LOI to head owners. Head owners, however, doubted whether the LOI would protect them, as the issue was not non-arrival of bills, but retention of bills by an unpaid seller.

Over 5–6 October (a weekend), head owners took English and local law advice, investigated the shippers’ claim, and explored solutions. The vessel resumed passage on 7 October, anchored, and tendered NOR at 02.30 on 8 October. Ultimately, the unpaid sellers confirmed receipt of payment on 16 October, after which the vessel berthed and discharged without incident.

Charterers claimed that between 12.00 on 5 October and 21.30 on 7 October (“the Stoppage Period”), owners wrongly refused to obey employment orders to proceed to the port. They argued the master had a duty to follow charterers’ instructions immediately; the shippers’ notice only prevented discharge, not port entry. By ignoring orders, the vessel was off-hire under clause 17, and owners were liable for damages for failure to proceed with due despatch (clause 8).

Owners contended that they acted reasonably in delaying compliance. They argued that the LOI did not protect against claims by lawful cargo owners who withheld bills of lading, as it was intended only to cover cases of delayed arrival of bills. They relied on Kuwait Petroleum Corp v I & D Oil Carriers Ltd (The Houda) [1994] 2 Lloyd’s Rep 541 and Time Charters (7th edn, para 19.2), which states:

Although the master is obliged to employ his ship in accordance with the orders of the charterers, he is not always obliged to obey their orders immediately. The circumstances in which an order is received, or the nature of it, may make it unreasonable for the master to comply without further consideration or enquiry. The right of the owners or the master to delay for a reasonable time before complying with an order is not confined to specific categories of cases and the question to be determined in each case is how a person of reasonable prudence would have acted in the circumstances.”

Owners argued that in view of the cargo’s high value, the warning from unpaid sellers, and the weekend timing, a short delay for legal advice and factual checks was entirely prudent.

The arbitrator upheld the owners’ claim. The stoppage was a “reasonable delay” within the Houda principle. A prudent shipowner faced with a direct warning from unpaid shippers holding original bills would not have sailed immediately into port, risking injunctions or liability. The delay of approximately 2.4 days was proportionate, especially as 5–6 October were weekend days. The vessel was not off-hire and hire accrued throughout.

Additional Claims

(1) Unsafe berth – underwater inspection. While alongside the berth on 17 October, the vessel touched bottom. Owners presented a master’s letter of protest and claimed US$10,856 for inspection. Under clauses 1, 5, 12 and 64, charterers warranted safe berths and guaranteed the vessel would not touch bottom. The arbitrator accepted the owners’ evidence and awarded the claim.

(2) Port call charges. Clause 103 provided a lump sum of US$5,000 for calls at East Coast South America or Black Sea ports. Although Rio Grande, Brazil, was specified in the recap, the arbitrator held that clause 103 applied in addition to the recap. The claim succeeded.

(3) Indemnity for head charter arbitration costs. Owners sought recovery of costs from a related arbitration with head owners, arguing charterers’ breach was the dominant cause. The arbitrator rejected this: while charterers’ conduct contributed, the overriding cause was owners’ decision to contest the head owners’ claims. Back-to-back arbitrations brought inevitable cost consequences that owners must bear themselves.

The owners’ claim for hire succeeded in full, with US$56,598.25 awarded plus interest at 5.5% per annum from seven days after redelivery. Their claims for underwater inspection costs (US$10,856) and port call charges (US$5,000) also succeeded. The indemnity claim failed, as did the charterers’ counterclaim for off-hire and damages. Owners were awarded their costs (£6,000) and the SCP fee (£5,000), both with interest at 6% per annum.