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Time Charter

Law and Sea.
Time Charterparty. Off-hire

… being under strict obligation to pay for services rendered by the owners, the charterers are obviously concerned over uninterrupted employment of the vessel. On the other hand, there are many factors peculiar to shipping business make delays inevitable. To deal with consequences of such delays parties insert certain provisions into the time charter contract, which are primarily collected in an ‘off-hire’ clause.

Off-Hire, Net Loss and Period Clauses
Last updated: 28-Nov-2015

In The Pythia [1982] 2 Lloyd’s Rep 160 per Goff J at p.168:

Now it is customary to draw a distinction between what have been called "period" off-hire clauses and "net loss of time" off-hire clauses. Historically some time charters have contained period clauses under which in certain specified circumstances the ship goes off-hire for a certain period. The difficulty with such clauses has however been that the ship might be put off-hire during a period when by reason of a specified event her performance was impaired despite the fact that during such period she was partially capable of performing and did so perform the services required of her. See, for example, Hogarth v Miller Brothers & Co., [1891] A.C. 48, and Tynedale Steamship Co. v Anglo-Soviet Shipping Co., (1936) 54 Ll.L.Rep. 341; (1936) 41 Com. Cas. 206. However there are also, perhaps because of possible injustices of this kind, net loss of time clauses, under which the ship is only put off-hire for the "time lost thereby", so that the time charterers cannot escape all liability for hire in respect of time for which they have at least some use of the vessel for the services immediately required of her.

Even in the case of such clauses, however, it has not followed that a precise comparison will be made between the period which would have been occupied in performing the relevant service had the off-hire event not occurred and the period in fact occupied in performing that service. No doubt the making of such a comparison, with the consequence that the difference between the two periods constitutes the period of off-hire, would lead to a logical result; but it could also lead to the most intricate and speculative enquiries as to the course which events would have taken if the vessel had not gone off-hire, and perhaps for that reason we find that, in for example the Baltime charter, although no hire is to be paid in respect of "any time lost thereby", nevertheless on the form of words so used no deduction of hire is made in respect of any period after the ship is once again able to perform the service immediately required of her. That clause is therefore a net loss of time clause, but only in respect of time lost during a particular period.

Into which category does cl. 15 of the New York Produce Exchange form fall? In my judgment, both as a matter of construction of the clause and as a matter of authority, it falls into the same category as the off-hire clause in a Baltime charter. The clause contemplates the happening of a certain event which has the effect of preventing the full working of the vessel in the performance of the service immediately required of her. If such an event occurs, "the payment of hire shall cease for the time thereby lost". The clause therefore contemplates a cesser of the payment of hire during the period when "the full working of the vessel" is so prevented, but only to the extent that time is thereby lost.

The Ira [1995] 1 Lloyd’s Rep 103 per Tuckey, J. at pp.105-106:

It seems to me that the question of whether the vessel was operating on the orders of owners or charterers is not to the point in calculating what time was actually lost to the charterers as a result of the off-hire event. Obviously during the time that the vessel is under directions to go to the port where it is to be drydocked and during the drydocking itself, an off-hire event has taken place. But the fact that it has taken place does not automatically supply the answer to the question of what time has been lost as a result of that occurrence …

Were this a period off-hire clause, then that approach would be perfectly proper. One could count the time, minute by minute, without regard to the consequences; but that is not the case here. Here the tribunal must obviously count the time and count the duration of the off-hire event but it must then go on to see what causative effect that has had …

…It is obvious that in certain circumstances it is not possible to determine what loss of time has occurred until the end of the off-hire event.

Minerva Navigation Inc v Oceana Shipping AG (The Athena)[2012] EWHC 3608 (Comm) per Walker, J. at para.84:

I consider that clause 15 [of NYPE form] in the present case permitted charterers to deduct time for the duration of the off-hire event, but only to the extent that there was a net loss of time to the chartered service. For this purpose it is not sufficient for charterers merely to show that, as regards the service immediately required, there was a net loss of time.

Per Lord Justice Tomlinson in Minerva Navigation Inc v Oceana Shipping AG (The Athena) [2013] EWCA Civ 1723 at paras 33-34:

33. The Pythia was concerned with clause 15 of the NYPE Form. I draw particular attention to the fact that Robert Goff J twice emphasised that although that is a net loss of time clause, it is concerned only with time lost during the period of inefficiency. This is achieved by the words "time thereby lost" and "time so lost" as it had been in Vogemann v Zanzibar.

34. As I have already mentioned above, the judge used a variety of phrases to express the concept with which he considered clause 15 is concerned. Thus at paragraph 33 he spoke of "a net loss in the performance of the chartered service", at paragraphs 38 and 65 of "a net loss of time in performing the charter service overall" and at paragraph 40 simply of "loss of time overall". The judge nowhere explains precisely what he means by these expressions. "The chartered service" might ordinarily be taken without more to be a description of the entirety of the service rendered by owners to charterers during the currency of a time charterparty. The use of the word "overall" begs the question what are the beginning and the end points of what is being measured. Without more, "the charter service overall" would seem to be a reference to the entirety of the service to be performed under the charter. It is immediately apparent that, quite apart from the fact that there is no justification in the wording for the adoption of this approach, it would lead to precisely those intricate and speculative enquiries which were deprecated both by this court in Vogemann v Zanzibar and by Robert Goff J in The Pythia.
It would also give rise to the distinct possibility that the same triggering event could give rise to different consequences in terms of off-hire in back to back charterparties of differing length. Mr Richard Lord QC for the owners submitted that the judge did not envisage a process of infinite regression and that what he had in mind was that "the charter service" is the same as "the adventure", an approach apparently embraced by the learned authors of Wilford at paragraph 25.53. The adventure here was, suggested Mr Lord, "the voyage including discharge at Benghazi". I have already indicated my view that this approach almost certainly involves a misunderstanding of what the authors of Wilford meant to convey. But in any event it is in my view both wrong and precluded by authority. It might be possible to describe the adventure contemplated by a time charter trip as involving a single voyage, but the same is not true of the more normal time charter which is measured by a period of time rather than by pre-determined employment.
It is also arbitrary and counter-intuitive to include loading and discharge within the voyage. The voyage, or at any rate the carrying voyage, typically begins on leaving the load port and ends on arrival at the discharge port. These concepts are important, since the same "adventure" is likely to be the subject of many interlocking contracts, including possibly a voyage charterparty and sale contracts in which the incidence of liability for delay is determined by whether or not the vessel is an "arrived ship" at the contractual destination. Once an arrived ship, the risk of delay is likely to shift. Thus in the usual case a Master’s refusal to proceed to the normal waiting place at the discharge port is likely to postpone the point at which a time charterer may pass on to his sub-voyage charterer the risk of delay at the discharge port. The same is true, mutatis mutandis, as between the sub-voyage charterer who may well be a seller of the goods carried and his purchaser. The present case is complicated by the charterers' order forbidding berthing/discharging, but in the ordinary case a vessel drifting at sea without proceeding to the port during a period when the vessel would otherwise have been awaiting a berth will have the result that the charterers are unable to start time running against their sub-charterers and the same will ordinarily be true as between sellers and purchasers. Seen in this light the judge’s notion of the charterers gaining a windfall in the event that the vessel is off-hire during the drifting period is wholly illusory since the Master’s arbitrary action has resulted in the upsetting of the normal allocation of the risk of delay.

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