December, 2022 - An inspector stalls: London Arbitration 9/22 and hold condition clauses
In time charterparties, it is common to find a clause along the following lines:
“Vessel’s holds on arrival at first load port(s) to be clean, dry, free of rust and/or scale and cargo residues and ready in all respects to load any/all permissible cargoes under the charterparty to the satisfaction of charterers’ nominated surveyor. If the vessel is not approved by the surveyor, the vessel is to be placed off-hire from the time of that failure until the vessel has passed a subsequent survey”
In other words, this is a “period off-hire clause” placing the ship off-hire from the time of a failed inspection until a successful re-inspection, regardless of whether or not there is a net loss of time to the service required of the ship (i.e. loading) because of the failed inspection. Such a clause was recently considered in London Arbitration 9/22.
The facts
The above clause (known as “clause 49”) was recently considered in London Arbitration 9/22. In that case:
- The charterparty also contained wording (lines 21-22) stating that on arrival at the first loadport, the ship was to be ready to receive any permissible cargo to the charterer’s/surveyor’s satisfaction; and
- prior to the ship’s arrival at the first loadport, the following exchanges took place between the parties:
- The charterer noted that surveyors at the port were strict, that a failed inspection might result in delay as the ship lost its turn in the berthing queue and that as a result “chrts propose to send a surveyor to anchorage cost about US$4,000, same to be split 50/50 between owners and chrts”;
- The owner agreed, and asked “let us please know if this will be an official holds inspection or just pre-inspection and holds will be officially inspected again alongside?”; and
- The charterer responded “this is the pre-inspection and final inspection will still be alongside”.
The ship arrived at the loadport on 1st October. The discussed “pre-inspection” inspection took place on 2nd October and the holds were rejected. The holds were rejected again (by the same surveying company) on 4th October.
The charterer sought to off-hire the ship under clause 49 from 2nd October, whereas the owner argued the ship should only be off-hire from 4th October. The charterer also argued that it was entitled to damages (additional delays caused by the ship losing its place in the berthing queue) because the owner had breached the charterparty by presenting the ship with unclean holds.
The decision
The Tribunal found against the charterer on both points.
Regarding off-hire, the Tribunal considered that the exchanges between the parties showed that they had agreed that the 2nd October inspection “was in no way an official charter party hold inspection but simple informative inspection for Master to get a better picture of shippers’ cleanliness requirements and it was as such accepted and carried out by the inspector and Master/crew”. The 2nd October inspection was therefore only “advisory” and not relevant for the purposes of clause 49.
Regarding damages, the Tribunal held that clause 49 set out the exclusive remedy (i.e. off-hire) for the holds failing any inspection. The charterer was therefore precluded from bringing a separate claim for damages, particularly when another clause of the charterparty (clause 56) allowed the charterer to add any off-hire period to the charter term – this in the Tribunal’s view emphasised the complete nature of the remedy in clause 49. In other words, a separate, free-standing breach of the charterparty would have been required for the charterer to claim damages.
Comments
On its face, London Arbitration 9/22 offers encouragement to owners, especially given that (a) clauses such as clause 49 are common and (b) it is not uncommon for parties to use terms such as “pre-inspection” when discussing inspections at ports. That said, it is arguable London Arbitration 9/22 ,may not be as useful to owners as might first appear.
First, as an arbitral award London Arbitration 9/22 is not binding on other Tribunals.
Second, in relation to off-hire the case turned very much on the facts. Unless there are clear statements from a charterer that an inspection is not to count for the purposes of a clause like clause 49, the reasoning of London Arbitration 9/22 may not apply. We consider that such circumstances would be unusual – why would a charterer agree to lose the benefits of such a clause?
Finally, in relation to damages it is open to debate whether the reasoning of London Arbitration 9/22 would apply in different circumstances. Lines 21-22 stated that the ship had to be ready to load cargo to the satisfaction of surveyors – what if the wording simply stated the ship had to be delivered with clean holds and ready to load? Would that mean that the holds being unclean is a separate breach to the holds being failed by an inspector, thereby entitling the charterer to claim damages? Put another way, while the parties may have agreed what will happen in respect of the time elapsing between a failed and a passed inspection (i.e. off-hire as per the clause), has the charterer agreed to bear any other time/costs incurred as a result of the ship being delivered with dirty holds?
We have already seen London Arbitration 9/22 cited by a number of owners and charterers. Perhaps only time (and potentially a binding High Court decision) will determine whether it is of wider application.
As always, if Members have any questions in relation to the above issues they are invited to contact the Club for further information.