Hyundai MM v. Furness Withy (Australia)

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Hyundai Marine Co Ltd v Furness Withy (Australia) Pty ("The Doric Pride")
English Commercial Court: Michael Crane QC: [2005] EWHC 945 (Comm): 20 May 2005
Philip Edey, instructed by Holman Fenwick & Willan, for the claimant charterers
Nigel Coooper, instructed by Bentley Stokes & Lawless, for the defendant shipowners

This case determined that a vessel awaiting a security inspection by the US Coast Guard was "detained" for the purposes of the off-hire clause in this single trip time charterparty. The practice of inspecting vessels visiting the US for the first time was not particular to New Orleans (the port of loading) but was a policy that applied generally to all US Gulf ports. It was, therefore, a risk inherent in the voyage that had been agreed in the charterparty. Owners were not therefore entitled to be indemnified by charterers in respect of the delay incurred.

DMC Category Rating: Confirmed

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

The "Doric Pride" was hired under a single trip time charterparty on the NYPE form for a voyage from "US Gulf to South Korea". On 2 February 2004, the charterers instructed the master to proceed to New Orleans to load a cargo of soybeans for carriage to ports in South Korea.

The vessel was due to arrive at New Orleans on 20 February. On 19 February (before the vessel had entered US territorial waters), the master was notified by the United States Coast Guard that the vessel had been designated "high interest" and was prohibited from entering the Lower Mississippi River until such time as the USCG had conducted a security boarding and inspection.

Following the terrorist attacks of 11 September 2001, the Marine Transportation Safety Act of 2002 required the USCG to develop a system for evaluating potential security risks in US waters. The term "high interest vessel" was used to describe "a commercial vessel intending to enter a US port that may pose a high relative risk to that port". Various factors would be taken into account in assessing the level of risk, although the reasons behind a decision to board a particular vessel would remain classified. However, there was evidence to suggest that, at the time, it was the policy at US Gulf ports to board and inspect vessels that were visiting the US for the first time.

The USCG ordered the "Doric Pride" to proceed to a particular location outside US waters to await inspection. The vessel arrived there on the morning of 20 February, anticipating that the inspection would take place the following day. But a serious collision between two vessels early on 21 February led to the closure of the Southwest Pass of the Mississippi River until 25 February 2004 and the "Doric Pride" being moved to another waiting location.

Had the vessel not been awaiting inspection, it would have been able to proceed up river to a loading berth, although the effect of the collision would have been to delay its passage back down river. As it was, however, the USCG was fully engaged in dealing with the collision and was unable to carry out the inspection until 26 February. Progress was then further delayed by the queue of shipping that had built up while the river had been closed.

The charterers claimed that the vessel was detained within the meaning of the off-hire clause in the charterparty from the time it arrived at the first waiting location on the morning of 20 February until the inspection was completed on 26 February.

Charterparty terms
The charterparty, dated 30 January 2004, was for:
"One time charter trip via safe anchorage(s) safe berth(s) safe ports always afloat, always Institute Warranty Limits from US Gulf to South Korea with bulk grain, duration of about 65 - 75 days without guarantee…"

Under clause 85:
"Should the vessel be captured or seized or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended until the time of her release, and any extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for Owners' account, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents or by reason of cargo carried or calling port of trading under this charter".

The owners maintained that the vessel had not been detained because, when it received the USCG order, it was not yet in US territorial waters and could have turned back. Even if the order had been a detention, the cause of most of the delay was the collision, not the order. In any event, the proviso to clause 85 applied because the detention was caused by the charterers' order to proceed to New Orleans and so was "occasioned by…a calling port of trading under this charter". Finally, the owners argued that they were entitled to recover the lost hire by way of the indemnity implied into time charters against losses or expenses incurred by owners in complying with the directions of charterers.

Had the vessel been detained within the meaning of clause 85 while awaiting inspection by the USCG? The judge held it had.

In the context of a charterparty, a vessel is detained when, as a result of some geographical or physical constraint upon her movement, she is prevented from proceeding as directed under the charterparty (The Mareva A/S [1977] 1 Lloyd's Rep 368 and The Jalagouri [2000] 1 Lloyd's Rep 515).

In The Jalagouri, clauses in a time charter on the NYPE form provided that time lost by reason of a vessel being detained or delayed by any authority was to be treated as off-hire. Under clause 72, should the vessel be detained at any port or place, owners were to provide security to effect her release. The port authority ordered the vessel from the discharging berth until security was put up for the costs of storing damaged cargo. The Court of Appeal held the vessel had been detained within the meaning of the off-hire clause, even though it was not prevented from leaving port, because physical and geographical constraints placed on its movements by the port authority prevented it from carrying out the service required under the charterparty.

The same reasoning applied to this case. The "Doric Pride" was kept from proceeding to her loading port and sent to wait at a specific location for about six days. This amounted to a constraint on her movements in relation to her service under the charter. Consequently, the vessel was detained within the meaning of clause 85.

What about the subsequent collision? This would only have been relevant if clause 85 had been a net loss of time clause, which would have made it necessary to distinguish time lost as a result of the detention as distinct from time lost from other causes. Under the terms of this clause, however, once a detention began, the vessel remained off-hire as long as it lasted.

The proviso
The cardinal rule is that the charterer pays for the hire of a ship unless it can bring itself clearly within the exceptions (Royal Greek Government v Minister of Transport [1948/9] Lloyd's Rep 196. Clause 85 was one such exception but was, itself, subject to a proviso. Once the charterers had demonstrated that the vessel had been detained, the onus of proof fell on the owners to show that the proviso applied. As a last resort, if there were real ambiguity in the meaning of the clause, the court would resolve it against the charterers.

The problem with clause 85 was that it was a classic time charter clause being used in what was essentially a voyage charter transaction.

The purpose of clause 85 in a normal time charter is fairly clear. The vessel comes under the direction of the charterers for an extended period and the charterers typically assume a wide-ranging discretion as to the manner in which the vessel trades. In return, the owners will usually (either expressly or by implication) obtain an indemnity against losses or expenses incurred as a result of complying with charterers' instructions (The Island Archon [1994] 2 Lloyd's Rep 227).

The proviso to clause 85 fits into this context. In principle, if the vessel is arrested or detained, the risk is for the owners and it comes off-hire for the duration. But if the detention is caused by an act or omission of the charterers, or if it results from the cargo carried or a port visited, hire is payable. The nature and condition of the cargo and the identity of the ports visited are within the control of the charterers and so are taken to be their responsibility.

But in a single trip time charter, the scope of the "calling port of trading" proviso is much more limited. In this case, the parties had specified a voyage from the US Gulf to South Korea, so the choice of a loading port in the US Gulf was not the result of the charterers' discretion but of mutual agreement. Characteristic features of the US Gulf ports were risks to which the owners had assented when they entered into the charterparty.

The nomination of a particular port within the US Gulf, however, was the responsibility of the charterers. Was the detention the result of the nomination of New Orleans, as distinct from some other US Gulf port? The judge thought not. The regulations and legal powers under which the USCG operated were common to all US ports. The evidence suggested that there was a general policy of declaring all first time visitors high interest vessels. The risk of detention for this reason was, therefore, inherent in the voyage that had been agreed.

No indemnity
This reasoning meant that the owners could not claim an indemnity for the costs of obeying the charterers' order to proceed to New Orleans. The implied indemnity does not extend to cover risks that the owners have agreed to run. What risks owners have agreed to run will depend on the true construction of the charterparty.

In this case, by agreeing to carry cargo from the US Gulf, the owners agreed to run the risk of being stopped for inspection under whatever laws applied generally to US Gulf ports. This was an ordinary incident of trading at the range of ports in question. The charterers were entitled to a declaration that the vessel was off-hire from 20 February to 26 February 2004 and the implied indemnity did not apply.

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