Eastern Pacific Chartering v Pola Maritime - the Divinegate
DMC/SandT/22/16
England
Eastern Pacific Chartering Inc v Pola Maritime Ltd (The “Divinegate”)
English Commercial Court: Deputy Judge Clare Ambrose: [2022] EWHC 2095 (Comm): 10 August 2022
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2022/2095.html
David Semark (instructed by Wikborg Rein LLP) for EPC (Owners)
Peter Stevenson (instructed by MFB Solicitors) for Pola (Charterers)
TIME CHARTER TRIP: BALANCE HIRE, BUNKERS AND EXPENSES CLAIMED BY OWNERS: WHETHER CHARTERERS COULD ANSWER CLAIM BY WAY OF COUNTERCLAIMS: DAMAGES CLAIM IN TORT FOR ALLEGED WRONGFUL VESSEL ARREST: ALLEGED UNDERPERFORMANCE OF VESSEL ON VOYAGE
Summary
In finding in Owners’ favour, save for 16 hours of underpeformance of the vessel on the cargo carrying voyage, the High Court gave valuable guidance on the various criteria to be considered in claims for breach of warranty of performance under a time charter. The High Court also held that Owners had, in seeking to obtain security for the outstanding hire and other items they claimed, not wrongfully arrested a vessel, “Pola Devora”, thought at the time of the arrest to be, but not in the event, beneficially owned by Charterers, with the result that Charterers’ claim for damages in tort failed.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Background
EPC, Owners of bulk carrier “Divinegate”, trip time chartered her to Pola, Charterers, on an amended NYPE 46 form dated 20 March 2019 subject to English law and the jurisdiction of the English High Court for a voyage from Riga to New Orleans carrying pig iron.
The vessel was launched newly built from the shipyard in March 2019, and undertook a voyage for another party, which culminated in a prolonged stay in tropical waters in India between 9 June and 11 July 2019. This led to a dispute with the other party before and after the cleaning of her hull in Sri Lanka. Afterwards, there was a further cargo carrying voyage from South America before the vessel was delivered into the service of Charterers at Rotterdam on 21 September 2019. Following the loading of the cargo at Riga, she bunkered at Skaw and proceeded to New Orleans, where the cargo was discharged and she was later redelivered to Owners on 3 November 2019.
Owners claimed an outstanding balance of hire, bunkers and some expenses totalling USD99,982.79 from Charterers. Owners arrested the vessel “Pola Devora” in Gibraltar to seek to obtain security for their claim, based on publicly available information suggesting she was beneficially owned by Charterers. The arrest was challenged but was maintained, pending the provision of security by Charterers’ P&I Club (Steamship Mutual).
Charterers had earlier had the vessel’s hull inspected by a surveyor at New Orleans and found signs of fouling. Charterers counterclaimed USD86,483.03 for alleged vessel underperformance. Charterers also accused Owners of the wrongful arrest of “Pola Devora”, and counterclaimed damages in tort of USD72,629.01. As such, if Charterers succeeded, they would obtain judgment for USD59,129.25.
This case note mainly focuses on the underperformance and hull fouling aspects of Charterers’ counterclaim, as the test that applies to determining whether an arrest claim is wrongful is long-standing, well known and the outcome turns on the facts.
Judgment
Having set out the background to the dispute and the terms of the charter, the judge began by considering Charterers’ counterclaim for the vessel’s alleged underperformance. The following main issues arose for determination:
a) was the claim time-barred?
b) was there a sufficient sample of good weather on the laden voyage over which to assess the vessel’s performance?
c) if so, whether Charterers could show underperformance, including whether allowance should be made for positive currents?
d) if there was no good weather period for assessing performance, could Charterers still establish a claim for underperformance, including whether breach of clause 8 and/or clause 15 (and consequential damages) could be established by reference to the vessel’s engine speed as operated on the laden voyage?
e) the existence, extent and effect of any hull fouling present on the vessel’s delivery under the charter, including whether any claim for time lost arising out of hull fouling was already covered by the claim for time lost in respect of slow steaming?
Time Bar
The burden of proof was on Owners to show Charterers’ counterclaim was time barred under clause 102 (fn.1). The judge noted, with reference to The “Oltenia” (fn.2), that “the plain effect of the present clause, in particular because of its documentary requirement, is that the claim should be presented with at least reasonable precision as to details and amounts”, with the purpose of such a clause being to enable a claim “to be investigated and if possible resolved while the facts were still fresh”.
The judge was satisfied, on the facts, that Charterers had presented their claim in time. Further, although the issue did not need to be determined, given that finding, the judge was of the view that it was unlikely that clause 102 was applicable to a claim for off-hire under clause 15 (fn.3), which is actually a defence to liability to pay hire, and is typically made by way of a deduction from hire.
Slow Steaming Case
Charterers contended that the Master did not comply with instructions to proceed at eco-speed and that his failure to do so amounted to (a) “a default of Master, officer or crew” entitling them to put the vessel off-hire for time lost under clause 15; or (b) a breach of the clause 8 (fn.4) obligation to prosecute the voyage with utmost despatch, or (c) a breach of the obligation under clause 1 to provide a vessel that was “tight, staunch, strong and in every way fitted for service” and to maintain her as such, or (d) a breach of the performance warranty at the time of delivery. If one or more of these breaches were established, then Charterers would be entitled to recover damages for resulting losses or to deduct the same amount from hire.
Good Weather Method
Charterers acknowledged that where the parties to a charter define the warranted performance by reference to a particular speed and consumption in good weather, the simplest (and conventional) way to prove these types of breach (and recoverable loss of time) was to establish that during periods of good weather the vessel did not achieve the warranted speed and performance and pro-rate the underperformance against the entire period under review. This is referred to as “the good weather method”.
Based upon their expert’s analysis of the report prepared by their weather bureau applying the good weather method, Charterers submitted that the vessel underperformed by 16 hours if no account were taken of positive currents, or 37.64 hours if 0.5 knots were deducted (to account for the benefit of positive currents), as suggested by Charterers’ expert, taking account of the Admiralty Pilot charts.
RPM Method
However, Charterers’ primary case was that underperformance or slow steaming could also be established by reference to the vessel’s reported engine settings, in particular by reference to the measured RPM (revolutions per minute) of the engine, which reflected the engine speed maintained by the crew. Charterers relied on their expert’s evidence to assert that the actual speed at which the engine was operated on the laden voyage (generally 92 RPMs or less, as shown in the engine logs) was insufficient to achieve the warranted good weather speed. Charterers maintained that the engine speed reflected the crew’s default in not maintaining sufficient engine speed to meet the warranted eco-speed ordered for the voyage.
The judge was not prepared to accept Charterers’ primary case, because the cases (fn.5) suggested the primary method of assessment for any claim reflects the chosen benchmark for performance, assessed by the good weather method. Any alternative method had to be established as reliable and consistent with the express warranty, especially in circumstances where the conventional method had been adopted for many years in an area of significant expertise, resources and innovation.
In particular, the judge held that the RPM method was not a reliable method to identify loss of time. It incorrectly assumed that resistance on the hull would be the same whether the engine was being run at 92 or 96 RPMs. It also failed to make any allowance for weather conditions being a reason for reducing the engine speed, and artificially assumed constant 96 RPMs being maintained over a voyage of over 6000nm that included some periods of heavy weather during an Atlantic crossing. Its premise (that the vessel was physically incapable of meeting the warranty) also ignored the fact that the vessel had actually achieved the warranted speed over a 10-hour period on 3 October 2019 and on the ballast voyage. This meant, in the judge’s view, that it was a very theoretical calculation and it was not a reliable measure of loss.
Positive Currents
On the issue of positive currents, as to which the parties had expressly agreed the warranty to include “NO ADVERSE CURRENTS”, the judge held that time spent sailing with adverse currents was not to be treated as good weather against which the performance warranty was agreed. It was fair to conclude that time spent sailing with a positive current would be counted and the parties could have made express provision excluding positive currents if they had wanted these to be deducted. This also reflected the majority of reported arbitration tribunal decisions and the reasons given in London Arbitration 15/07.
Douglas Sea State
On the issue of Douglas Sea State 3, which the charter had defined as “a swell wave height of less than 1.25 metres”, whilst the experts acknowledged that the measurement of DSS was debatable, the charter definition was decisive, such that the application of the square root calculation used by Owners’ expert to measure Significant Wave Height, as a proxy for DSS, was misplaced.
Slow Steaming Decision
Given the judge’s findings on the effect of positive currents, she found that there had been underperformance against the performance warranty that gave rise to a loss of time of only 16 hours, with both parties’ experts having accepted that there was a sufficient period of good weather, of 32 hours on 23-24 October 2019, for the good weather method to be applied to assess the vessel’s performance.
Hull Fouling Case
As to the hull fouling, it was common ground that some fouling by way of barnacles was found on the vessel’s hull at New Orleans. The fouling was complex and the videos relating to the cleaning indicated varying patterns of fouling. However, the research relied on by Charterers did not show a reliable method for assessing the impact of fouling on the speed of bulk carriers.
Whilst not necessary for the decision, as the RPM method had been found to be unreliable, it was significant that Charterers’ expert accepted that there would be duplication, and so a risk of double recovery, for the same underperformance in seeking to assess any loss of speed being solely attributable to the fouling alone.
Hull Fouling Decision
On the above basis, the judge’s view was that, in circumstances where Charterers had established a loss from slow steaming under the good weather method, there would be double recovery if Charterers’ expert’s calculation was added, since the good weather method covered underperformance by reason of hull fouling (and any other matter affecting performance). As such, the judge rejected Charterers’ claim for time lost solely in respect of hull fouling.
Wrongful Arrest
In view of (a) the law on the meaning of ‘beneficial ownership’ of vessels for the purpose of the Senior Courts Act 1981, (b) the long-standing and well-known definition of a wrongful arrest, requiring mala fides (bad faith) or gross negligence or recklessness implying malice by the arresting party, to be proven by the claimant, and (c) the facts showing that the position on the ownership of “Pola Devora” and its relationship to Charterers, on the publicly available information (which lacked clarity), suggesting there may have been such a relationship at the time of arrest, the judge held that Owners had not wrongfully arrested “Pola Devora”. Whilst privately available information provided later proved that there was no relationship of beneficial ownership by Charterers, Charterers’ counterclaim for damages in tort was nevertheless dismissed.
Comment
This judgment is a rare example of a speed and consumption dispute being resolved before the courts, as they are most commonly dealt with in arbitration. That situation is a pity because more binding decisions from the courts would assist to map out and clarify the law on this complex subject. Such questions of law could still be put to the courts under section 45 of the Arbitration Act 1996, although, from the lack of such judgments, this route is not presently being used.
An interesting non-binding aspect of the decision usefully suggests that claims presentation time bars do not apply to an off-hire claim as a defence to liability to pay hire. This appears to be correct, because off-hire is not a claim in the strict sense, despite this resulting in side-stepping the objective intention of such time bars, to require disputes to be notified promptly for investigation while the facts remain fresh. That said, as an off-hire deduction is usually made or asserted promptly by a charterer, an owner would, in practice, usually know of a dispute early enough for the matter to be investigated while the facts remain fresh.
A key binding aspect of the decision confirms that the benefit of positive currents is not to be deducted from good weather periods for the purpose of (artificially) reducing a vessel’s performance speed, absent clear words to that effect in the good weather criteria. This is helpful guidance, because the reported arbitration awards are inconsistent on this issue. This, too, appears to be correct, because the criteria that define good weather conditions are to be interpreted by what is written in the warranted description of performance, rather than by what is not expressed therein. Furthermore, implying the deduction of a benefit is neither obvious nor necessary for the purpose of making a time charter work.
The view on Douglas Sea State 3, when referred to in general, was not touched on, other than to note it is controversial (because it is, in effect, not a quantitative measure in the true sense). However, the decision that the defining words given are decisive is to be welcomed, which confirms the view often taken in the reported arbitration awards. That said, a change to using Significant Wave Height, which is a quantitative measure, in speed and consumption warranties may help, because the difficulties in trying to apply DSS3 can then be avoided.
Whilst Time Charters takes the view that technology is evolving and may be able to provide a better assessment of vessel performance in time, the judge was not convinced by the RPM method as applied on the facts in this case. The judge has helpfully identified the perceived deficiencies in the RPM method, but human ingenuity and technology may be able to address these shortcomings over time.
Footnote 1:
“102. Performance Claims Clause
Any claims by Charterers relating to the performance of the Vessel and/or the Vessel's equipment including speed claims are to be submitted to Owners in the form of a statement of claim with supporting documents within 90 days of the completion of each voyage concerned or otherwise be waived ‘nullified’, except cargo claims which are to be dealt with as per Charter Party.”
Footnote 2:
[1982] 1 Lloyd’s Rep. 448
Footnote 3:
“15. That in the event of the loss of time from deficiency of Owners' men or Owners' stores, default and/or strike of Master/Officers and crew…or by any other cause attributable to the vessel and/or crew, preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost, and all directly related and proven expenses to be for Owners' account; and if upon the voyage the speed be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost, and the cost of any extra fuel consumed in consequence thereof, and all extra directly related and proven expenses shall be deducted from the hire.”
Footnote 4:
“8. That the Captain shall prosecute his voyages with the utmost despatch, in accordance with Charterers instructions …”
Footnote 5:
The “Didymi” [1987] 2 Lloyd’s Rep. 166, The “Gas Enterprise” [1993] 1 Lloyd’s Rep. 352 (C.A.), The “Peaarl C” [2012] EWHC 2595 (Comm) and The “Ocean Virgo” [2015] EWHC 3405 (Comm)
