Alpaca v. Primex

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DMC/SandT/40/01
Alpaca Shipping Corp. v. Grupo Primex S.A. de C.V
New York Arbitration: Society of Maritime Arbitrators: Patrick Martin and Austin Dooley, arbitrators: December 2001
TIME CHARTERPARTY: SPEED AND CONSUMPTION CLAUSE: ADJUSTMENT IN HIRE FOR OVER- AND UNDER-PERFORMANCE: ALLOWANCE FOR THE WORD ‘ABOUT’: USUAL ALLOWANCE IN SPEED PERFORMANCE CLAIMS: WHETHER APPLICABLE TO FUEL AND DIESEL CONSUMPTION

Summary
In this case, Alpaca Shipping, as shipowners, were held entitled to recover from Grupo Primex, as charterers, additional hire and savings in the costs of fuel and diesel by reason of their ship outperforming the guarantees contained in the charterparty over the three-year period of the charter. The speed claim, but not the consumption claim, was subject to an adjustment of 0.5. knots, by reason of the guaranteed speed being qualified by the word ‘about’.

DMC Category Rating: Confirmed

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Facts
Alpaca Shipping Corp., owners of the products tanker ‘Artesia’, chartered her to Grupo Primex for a ‘pipeline service’ carrying vinyl chloride monomer from the US Gulf to Mexico, over three consecutive periods of one year. Clause 24 of the charterparty, which was on an amended SHELLTIME 3 form, provided that ‘owners guarantee that the average speed of the vessel up to Beaufort scale 4 will be ‘about 12 knots in ballast and 12 knots fully laden, with a maximum consumption of 1.8 tons M.gas oil/10,5 tons fuel oil per day…..’. The clause went on to provide that, if the vessel fails to meet the guaranteed speed, the charterers are entitled to a downward reduction in hire for speed and consumption. Similarly, if the vessel exceeds the guaranteed speed, the owners are entitled to an upward adjustment for speed and consumption. The word ‘about’ had been inserted by the parties. It does not appear in the printed text of the SHELLTIME 3 charterparty form. Neither side presented evidence as to why this had been done.

At the end of the charter, the owners submitted a claim for an adjustment in hire of US$137,414, based on average speed calculations for the three years of 12.56, 12.61 and 12.62 knots. In addition, owners claimed for fuel and diesel savings in the combined amount of US$65.407. Charterers rejected owners’ claim and counter-claim for a pumping deficiency.

Award
In an agreed award, the arbitrators noted that, under clause 24 of the charterparty, the compensation for over- and under-performance was not, as in the typical time charter speed claim, a claim for damages for breach of charter; rather was it an increase or reduction in hire in amounts proportionate to the time gain or loss and excess fuel saved or used.

The main issue was the benchmark for performance in either speed or consumption. The panel found that, in interpreting clause 24, the word ‘about’ applied to both the ballast speed and the laden speed, but did not apply to the fuel consumption. The panel noted that the usual allowance for the word ‘about’ in speed and consumption claims was a downward allowance of 0.5 knots to the guaranteed average speed and decided that this allowance should also be applied to owners’ over-performance claim. On that interpretation, owners were entitled to an upward hire adjustment to the extent that the vessels’ average speed exceeded 12.5 knots. As regards the fuel and diesel consumption, owners were entitled to the full saving, because the vessel had met the benchmark speed of ‘about’12 knots, that is, 12.5 knots, each year and there was no allowance built into the wording.

The panel recalculated owners’ claim on this basis and awarded them a hire adjustment of US$20,186 for the speed over-performance and the full amount of US$65.407 for the saving in fuel and diesel. The charterers’ counter-claim failed, as the loss of time fell within the 72 hours ‘free’ time allowed to owners under the charter for off-hire for breakdowns of this nature.

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 Comments contributed by Pat Martin, arbitrator
The word ‘about’, on which this award turned, appears in most of the printed charterparty forms of long standing, such as the New York Produce Exchange Form, especially in the dry bulk trades. Most of the tanker forms of charter, on the other hand, do not use the word ‘about’.

The older forms also treated the speed and consumption warranties as a representation of the vessel's capabilities and the owner wanted some protection for any alleged breach. Since this was a representation, there were no negotiations as to what the figures should be.

The newer forms treat the speed and consumption matters as a performance clause and they are therefore not exactly tied to the vessel's capability. Indeed, within reasonable limits, the speed and consumption figures can be negotiated. Higher figures would generally mean a higher hire rate, but with a greater possibility that the owner would have to give something back under the clause if the vessel did not make the grade. Lower figures would mean a lower rate, with the likelihood that the charterer would have to pay a bonus, if the measures were exceeded.

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