DMC Category Rating: Confirmed

This case note is based on an Article in the April 2005 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA Piper Rudnick Gray Cary. DLA Piper is an International Contributor to this website.

Background
On 17 November 1999, the owners time-chartered the vessel "Kitsa" for a period of four to six months (later extended to about seven to nine months) on an amended NYPE form. The charterer sub-chartered the vessel on identical terms, save for the period of the charter and the hire. Sub-charterers then sub-sub-chartered the vessel, also on an amended NYPE form, for a time charter trip for the carriage of coal from South Korea to Visakhapatnam ("Visak") in India.

The vessel arrived at Visak on 4 May 2000, but discharge was delayed so it remained at the port for over three weeks, during which time the hull became seriously fouled by barnacles. The owners undertook de-fouling work back in the UK and claimed the cost of approximately US$180,000 from the charterers, on the basis that it was covered by an implied indemnity in the charterparty.

There was no dispute that the charterers had been entitled to order the vessel to go to Visak. In the broadest sense, the hull fouling was a consequence of that order. But were the charterers liable for the cleaning costs?

It was common ground that, in general terms, this charterparty included an implied indemnity requiring charterers to indemnify owners against the consequences of complying with charterers' orders as to the employment of the vessel. Such an indemnity is seen as either being reasonable and necessary for the business efficacy of the charterparty, or is implied as a matter of law. The question was the scope of that indemnity.

When deciding whether a particular expense is covered by the implied indemnity under an NYPE charterparty, the question to ask is "Was this type of risk one that the shipowners agreed to bear at the time the charter was concluded?" If the occurrence and type of loss is unforeseen, this will be a strong factor in deciding that the loss or expense falls within the indemnity (Triad Shipping Co v Stellar Chartering and Brokerage Inc ("The Island Archon") [1994] 2 Lloyd's Rep 227).

The arbitrators held the charterers were not liable. They found as a question of fact that, although the cargo might have been discharged at Visak in a shorter time, it was not outside an owner's reasonable expectation that the vessel might spend three weeks there in the course of entirely ordinary employment.

The risk of the vessel suffering hull fouling by being inactive in a warm water port as a result of a legitimate order of the charterers was foreseeable and foreseen by both sides at the time the charterparty was made. The risk that the vessel's performance would suffer as a result and the owners would have to clean the hull as soon as they could was also foreseeable and foreseen. The cost of de-fouling was, therefore, not within the scope of the implied indemnity under the charterparty but an ordinary expense of trading.

Judgment
The court agreed with the arbitrators. If the loss or expense arose from a risk that the owners had agreed to run, then there was no right to an indemnity. This can be analysed either in terms of causation (because the loss or expense was not directly caused by the charterers' order) or on the basis of the risks the parties agreed that the owners would bear. In this case, whichever approach was adopted, the arbitrators were entitled to reach the conclusion they did.

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