DMC Category Rating: Confirmed

Note contributed by Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law, Trainee Solicitor and International Contributor to DMC’s CaseNotes

Background
The Owners time chartered their vessel to the Charterers for use in a containerised liner service operated by the Charterers between Asian ports.

The vessel, following discharge and loading in Yokohama, was ordered by the Charterers to proceed to Shanghai as her next port of call in the liner service. On leaving Yokohama early in the morning of 6 September 2007, the vessel anchored at the master’s behest due to his concern that she would be struck by an impending typhoon during her voyage to Shanghai. Whilst still at anchor, the vessel, in the early hours of 7 September, dragged her anchor and struck a nearby breakwater, sustaining substantial damage. The vessel was inspected at Yokohama by her Classification Society ("Class"), which imposed on her a condition that she sail directly to Hong Kong to discharge the entire cargo before going to Guangzhou for repairs. The vessel left Yokohama for Hong Kong around mid-morning on 22 September 2007.

The charter, which was on an amended NYPE 93 form, provided among other clauses that:

"Any time lost, either in port or at sea, deviation from the course of the voyage, or putting back whilst on voyage caused by … an accident or breakdown to the vessel, the hire shall be suspended from the time of inefficiency in port or at sea, deviation or putting back, until the vessel is again efficient in the same or equivalent position, whichever is the shorter distance to the port where the vessel is originally destined, and the voyage resumed therefrom ..." ("Clause 57")

"Unless caused by Charterers' servants, if the vessel is off-hire… for a period of 20 consecutive days… then the charterers have the option to re-deliver the vessel when next cargo-free". ("Clause 81")

The Charterers cancelled the charter pursuant to Clause 81 on 28 September 2007, relying on what they asserted to be a consecutive period of off-hire under clause 57 since 7 September 2007. The Owners disputed the Charterers’ right to cancel. The issue in dispute before the Commercial Court came by way of an appeal under s.69 of the Arbitration Act 1996 from a consolidated arbitration award in which the LMAA arbitrators (Bruce Harris and John Schofield) had found in favour of the Owners. The court had to decide whether or not the Charterers were entitled to cancel the charter under Clause 81.

Before the court, the Charterers contended that from 7 September the vessel was not complying with their instructions; she was acting on the Owners' behalf and in accordance with the instructions given to the Owners by Class. The Owners contended that although there was off-hire from 7 September until 22 September in accordance with Clause 57, while the vessel remained in Yokohama, she came on-hire again on leaving Yokohama on 22 September, because, although she was en route to Hong Kong, the route to Hong Kong and to Shanghai were identical for 1½ days and it was only when she diverted from that common route, on 23 September, that she went off-hire again.

Judgment
The Judge stated that the question of law to be asked in relation to whether or not a vessel was on hire was whether she was in an efficient state to perform her services, that is, to do what she was required to do when she was called upon to do it. On the facts, the Judge had to decide whether the vessel, on its way under instructions from Class to a repair yard, and not going to Shanghai to unload and load cargo in accordance with the Charterers' orders, was rendering services in accordance with the charter to the Charterers.

The onus was on the Charterers to bring themselves within the beneficial exemption of Clause 57. The Judge was satisfied, however, that the vessel was off-hire for 20 consecutive days. The Charterers were accordingly entitled to cancel the charter under Clause 81 once the vessel next became cargo free, as they had.

The crux of the Judge’s reasoning was that the Owners’ argument ignored the fact that what the vessel at the relevant time was supposed to be doing was not proceeding towards Shanghai, but proceeding to Shanghai, in accordance with Charterers’ order to discharge her cargo there and load other cargo. The vessel was operating in accordance with Owners’ orders at that time, not those of the Charterers, whether or not she was also ‘efficient’ for the purposes of a voyage to Shanghai.

The important question for the Judge to ask was under what instructions the vessel was operating at that time. The instructions were that the vessel was not voyaging to the Charterers’ discharge port, and, in the Judge’s opinion, in those circumstances when she was voyaging on 22 and 23 September, after leaving Yokohama, she was not carrying out the Charterers’ instructions and not providing them with the service that she was supposed to supply them. This was partly because of the damage, but, more significantly, because the existence of that damage had led to instructions from Class that she should not go to Shanghai but, on the contrary, that she should discharge the entirety of the cargo somewhere else, namely Hong Kong.

The Judge indicated that, when seeking to define the underlying commercial purpose of the charter, consideration was better directed towards the fact that the vessel was hired to comply with the Charterers’ orders to provide them with the trading opportunities to travel to specified ports where cargo could be loaded and discharged. The Judge criticised evaluation by reference to whether or not the vessel was neutrally travelling along a route, whether a common route or otherwise, because such an approach failed to provide the level of legal certainty required by commercial parties. Such an approach would lack legal certainty because the route adopted by vessels to steam to certain locations involves a choice of routes dependent upon all kinds of matters such as time of year or climatic and trading conditions. To adopt a concept such as factual geographical reference to the direction in which direction the vessel was voyaging would not – in the Judge’s view - create certainty but could well create the reverse.

Comment
The underlying reasoning of the Judge hinged on the vessel complying with Charterers’ orders as a matter of fact, whilst being at the same time in an efficient state for those purposes. The fact that the vessel is efficient to comply with orders is therefore irrelevant if they are the orders of the Owners and contrary to the Charterers’ orders. Given the underlying commercial purpose of the charter, there would be little sense in the vessel being on hire at the expense of the Charterers for a period where the Owners’ underlying intention had never been to use her for Charterers’ purposes. Equally, adopting the alternative approach would have meant that a vessel would technically go back on hire for a very short duration simply by coming out of a harbour for a few hundred metres despite her doing so for the underlying purposes of the owners.

The Judge had interestingly noted that the answer might well have been different if the vessel had already set out from Yokohama before a decision was made to change her destination while en route. The Judge considered that in those circumstances, until that decision was made, the vessel would have been carrying out the Charterers’ orders, so that the vessel would remain on hire until that time. While this conclusion follows as a matter of logic from the Judge’s reasoning, this statement of opinion was not strictly necessary for the purpose of determining the question before the court.

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