DMC Category Rating: Confirmed

Facts
The defendant charterers chartered from the claimant shipowner the "Agios Dimitrios" under a voyage charter on the Gencon form (1984 Revision) dated 6 May 2003 to load at Eilat a cargo of phosphate, potash and salt for carriage to Amsterdam. The relevant terms of the charter read as follows:

Clause 23(b)
At loading port(s) when tendering notice of readiness, vessel’s cargo holds and hatch covers shall be clean, dry of loose rust and otherwise ready and suitable to receive the intended cargo.

Clause 25 (Twelve)
Crew and mechanical failure – time lost at loading and/or discharging port(s) which can be reasonably attributed to crew and/or ship’s mechanical failure, shall not be counted as laytime or time on demurrage. Any extra expense thereof to be borne by the owners.

The vessel arrived at Eilat in the early morning of 8 May 2003 and the surveyor appointed by the shippers/charterers conducted what the arbitrators described as "a superficial visual examination" of the vessel’s cargo holds, from the main deck. He indicated that the holds were acceptable. Notice of readiness was accepted and time began to run from that day. Loading began on May 12. On May 21, the shippers’ inspector noted that the holds had been contaminated by a previous cargo of barley. Loading was suspended to enable the surface of the cargo already loaded and the upper parts of the holds to be cleaned. During this period the ship was moved off the loading berth. Loading was recommenced only on May 29. It was completed on June 3.

The shipowner claimed that time had begun to run when notice of readiness was accepted on 8 May and that laytime therefore expired on May 20, the day before the discovery of the contamination. It accordingly claimed demurrage on the basis of the maxim "once on demurrage, always on demurrage" and gave no allowance in its demurrage calculations for the time from May 21 to May 29, when the loading was suspended to clean the holds and the cargo surfaces. The shipowner maintained that the vessel did not need further cleaning and that, when notice of readiness was given on 8 May, she was as clean as was necessary to carry the contractual cargo.

Charterers, on the other hand, maintained that contamination by barley damaged or would damage the contractual cargo and that the vessel was, at no material time before suspension of loading, ready to load. They accordingly deducted some US$56,500 from the demurrage account, representing the demurrage that would have accrued – or an equivalent amount in damages – during the period of suspension of loading. The first claim was based on clause 25 of the charter, the time lost being reasonably attributable to "crew failure" to clean the holds properly before giving notice of readiness. The second claim was based on a breach of clause 23(b), which entitled the charterers to damages equivalent to the demurrage due.

However, in the event that the shipowner was held to be in breach of contract in either respect, it submitted that the charterers’ acceptance of the notice of readiness acted either as an estoppel or as a waiver of the breach, on which the shipowners had relied in commencing loading, thereby permitting the consequent contamination of the cargo with the barley residues and rendering any subsequent cleaning of the holds more costly to carry out.

The arbitrators held that the holds had been inadequately cleaned in breach of clause 23(b) of the charterparty and that all time from the suspension of loading until completion of the cleaning of the holds should be treated as time lost. As a result, it should not count as demurrage either under the application of a counterclaim for damages or under the express provisions of clause 25 of the charterparty.

On appeal to the High Court, the shipowner submitted that there had been a serious irregularity under section 68 of the Arbitration Act 1996, in that the arbitrators had not considered its submission (1) that the charterers were estopped, by reason of their acceptance of the notice of readiness, from arguing either that demurrage should be reduced by operation of clause 25, or by way of set-off for breach of clause 23(b); and (2) the charterers had obtained a benefit from the need to take the vessel off her berth to carry out the cleaning, in that they had arranged for another vessel - also on charter to them - to occupy that berth for loading. This would have saved the charterers money and their damages should have been reduced accordingly.

Judgment
In considering the appeal, the judge said that it was important to keep in mind the distinction in the remedies provided by clauses 23(b) and 25 respectively. If there had been a breach of cl.23(b) by omission of the shipowner to provide clean holds ready and suitable to receive the intended cargo and notice of readiness had been given and accepted by charterers, the question whether the shipowners had complied with their obligation was not necessarily concluded, for the holds may in fact have been unclean and unfit and that condition may not have been reasonably apparent when the notice of readiness was accepted. Time would then begin to run and, in the absence of a provision such as cl.25 which stops it running, it would continue to run until completion of loading. If, in the meantime, there was delay while the holds were cleaned – and the shipowner’s breach thereby cured – the charterers would be entitled to damages for that breach which might at least in part be quantified by reference to the amount of demurrage as may have occurred. The demurrage in respect of the delay period would not then be recoverable because the damages due to the charterers would be offset against the demurrage otherwise due to the shipowners.

Where, however, there was a provision such as cl.25, which had the effect of interrupting or reducing the period of laytime or time on demurrage, the analysis was different. If the facts provided for in the clause as a ground for the interruption of time were established, time is to be treated as automatically curtailed. The effect of cl.25 in the present case was thus that if time were lost by reason of the failure of the crew to perform functions relevant to loading and that caused delay in loading, the period of delay would be deducted from the used laytime or, if the vessel were already on demurrage, from the time on demurrage. This clause clearly did not depend on the charterers establishing that the shipowner was in breach by reason of such crew failure, but merely on the fact of such crew failure and the consequent delay. Further, the process of quantification of the relevant deduction of time had nothing to do with whether the charterers had suffered a net financial loss due to the crew’s failure; the only relevant currency was that of lost time.

The judge held that, against this background, it was open to the arbitrators to conclude that acceptance of the notice of readiness following the superficial inspection had no greater effect than to represent that, as far as such inspection disclosed, the vessel’s holds were clean and ready for loading to commence. That, however, was a representation neither that there had been no breach of cl. 23(b) nor that there had been no earlier crew failure within cl. 25. All that was represented was that, so far as the charterers were aware, the vessel was ready to start loading. That was enough to start laytime running. Consequently, when, upon discovery of the true state of the holds, loading was stopped and charterers asserted that the shipowner was in breach of cl. 23(b) and that the facts also fell within cl. 25, they were not resiling from any previous representation implicit in their acceptance of the notice of readiness. Thus the waiver and estoppel submission could never get part the first stage, namely that of establishing that there had been a material representation or promise.

On this analysis, the arbitrators had reached the correct conclusion on the issue of estoppel and there had been no serious irregularity in this respect.

As to the second point, the judge noted that the shipowner had adduced no evidence to substantiate its allegation that the charterers’ losses had been reduced by the earlier loading of the other vessel. Accordingly, the judge did not believe that the arbitrators had committed any serious irregularity in not taking the matter into account. Nor did he believe that any alleged irregularity relating to the proof of damages for breach of cl.23(b) would have given rise to substantial injustice (as required by s.68 of the Arbitration Act), since the charterers would have been entitled, by reason of the provisions of cl. 25, to displace the demurrage claim to the same extent as awarded by the arbitrators. That clause operated regardless of any set-off by way of a claim for damages for breach of the charterparty.