Commercial Court rules that vessels time chartered on NYPE terms remain on hire during detention by pirates.

22 Jun 2010

The chilling reality of modern day piracy has already been brought home with urgency to shipowners and their insurers forced to pay huge ransoms to secure the release of vessels and cargo.

Now, in a judgment of immense importance to the industry (Cosco Bulk Carrier Co Ltd v Team-Up Owning Co Ltd [2010] EWHC 1340 (Comm)The Saldanha), the Commercial Court has added to that list the hapless charterer whose use of a vessel is interrupted by the action of pirates. 

The question put to Mr Justice Gross was summarised by him as follows:

“whether detention by pirates, piracy or perhaps the effects of piracy entitled charterers to put the vessel off-hire in reliance upon that version of cl.15 of the NYPE form of charterparty agreed by the parties in the charterparty of 25th June, 2008 (“the charterparty”)”.

An eminent Tribunal answer that question in the negative.  Mr Justice Gross upheld their Award.

The Saldanha was chartered under the NYPE form, including the usual off-hire provision in Clause 15, slightly amended to read as follows:

“ That in the event of the loss of time from default and/or deficiency of men including strike of Officers and/or crew or deficiency of… stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, dry-docking for the purpose of examination or painting bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost…”

(italics added)

As a matter of fact, the Tribunal found that there was a loss of time; indeed that was not and could hardly have been disputed, since the vessel was in the pirates’ hands from 22 February to 25 April 2009 and it was only on 2 May 2009 that she was in a position equivalent to her position at the time of seizure.  They also ruled that the “full working” of the vessel had been prevented by the seizure. Neither of those findings were appealed.

It is of course entirely trite that payment of hire must continue unless a charterer can bring himself squarely within an off-hire clause, and that any doubt is to be resolved in Owners’ favour.  The question was therefore whether Charterers could rely on one of the 3 off-hire events specified in Clause 15, namely:

(1) “Detention by average accidents to ship or cargo” (which his Lordship designated as “Issue (I)”

(2) “Default and/or deficiency of men” (“Issue (II)”)

(3) “Any other cause” (“Issue (III)”.

Issue (I) “Detention by average accidents”

It was imaginatively argued by counsel for Charterers that the reference to “average accidents” meant a vessel would be off-hire if there was an event that would constitute a marine peril and, by section 3 of the 1906 Act, piracy is a marine peril.

Mr Justice Gross agreed with the Tribunal that an attack by pirates could not properly be seen as an “average accident”, for the following interrelated reasons:

(1) It was incompatible with persuasive authority on the point.  In The Mareva AS [1977] 1 Lloyd’s Rep 368, the then Mr Justice Kerr said obiter that average accident

“merely means an accident which causes damage”

While not strictly binding, the market has treated Mr Justice Kerr’s dictum as correct for over 30 years and innumerable charterparties have been agreed on that basis, so Mr Justice Gross felt compelled to concur.  On the facts, the vessel was not damaged in the attack so there was no average accident.  

Counsel for Charterers pointed out that the Mareva construction led to an element of overlap, given the specific mention of “damages to hull, machinery or equipment”.  However, Mr Justice Kerr had specifically considered this issue and, given the very weak presumption against surplusage in charterparties, this argument was inevitably dismissed.

(2) Even putting Mr Justice Kerr’s dictum to one side, the Tribunal noted that the word “average” tends to be used by the market to mean damage that falls short of a constructive total loss, and not just any marine peril.

(3) The attack could not be described as an “accident” in any event.  His Lordship upheld the Tribunal’s reasoning, set out in the following key passage:

“ We disagree that ‘accident to the ship’ is a natural way to describe a seizure by pirates. We cannot imagine a master telephoning or e-mailing his Owners after the seizure and saying ‘there has been an accident to the ship’. He would naturally say ‘the ship has been seized by pirates’ or ‘we have been captured by pirates’.  Accident requires lack of intent by all protagonists.  An obviously deliberate and violent attack is not described as an accident, no matter how unexpected it may have been to the victim. A much more specific word or phrase is put to the incident, to reflect its deliberate and violent nature.”

That reasoning was described by his Lordship as “unanswerable”, and on that he must surely be correct.

Issue (II)  “Default and/or deficiency of men”

The Tribunal was asked to determine the meaning of these words on facts that were assumed (but very much in dispute), namely that the Officers and crew had failed to take recognised anti-piracy precautions and that this failure caused or contributed to the capture. 

Both the Tribunal and Mr Justice Gross held that such assumed facts would not amount to “default or deficiency of men”. 

At both levels, Charterers argued that the natural meaning of “default” could include negligent or inadvertent failures, and not just deliberate refusals to act. However, their construction was rejected for 3 reasons:
(1) The addition of the words “default and/or” before “deficiency” was to solve the problem that arose in Royal Greek Government v Minister of Transport (1949) 82 Ll. L. Rep. 196, in which the Court of Appeal held that a “deficiency of men” did not cover a wilful refusal to work. While the natural meaning of the words “default … of men” may have a wider meaning than such a wilful refusal to act, Mr Justice Gross emphasised he must also bear in mind the mischief that those words were designed to cure.

(2) While the additional words “…including strike of Officers and/or crew” had limited weight, it was striking that this was the only example given and that it was clearly an example of wilful refusal to carry out duties. While “not decisive in itself”, this was:

“a pointer towards a narrow construction of ‘default of men’, consistent with the history of the clause and the mischief at which it is aimed”.

(3) One must have regard to “the allocation of risk of delay under a typical time charterparty”, which Charterers’ construction sought to shift in a quite fundamental way, at least if taken to its logical conclusion. Indeed, it would mean Owners’ taking the risk of delay caused by any inadvertent failure by crew to perform their duties.  This would be:

“a startling alteration in the bargain typically struck in time charterparties as to the risk of delay”

Charterers were unable to point to any authority in support of their construction and Mr Justice Gross did not see this as the time to create it.  

His Lordship recognised that, in rejecting Charterers’  construction, he was departing from the “natural meaning of the word ‘default’” but was of the view that Owners had the better arguments for the reasons set out above.  Being a point of construction with little authority, this may be where Charterers get their permission to take this appeal further.

Issue (III)  “Any other cause”

This version of clause 15 did not have the addition “… whatsoever” so the starting point was that the words “any other cause” had to be construed ejusdem generis as per Mr Justice Rix’s judgment in The Laconian Confidence [1997] 1 Lloyd’s Rep 139 at 150-151 .

Counsel for Charterers made ingenious attempts to distinguish The Laconian Confidence:

(1) Even without the word “whatsoever”, the phrase “any other cause” was still a sweeping up provision and was there to prevent “disputes founded on nice distinctions”.

(2) While “any other cause” would have to be construed in the context of clause 15, there was no easily identifiable “genus” by which its meaning could be limited, save perhaps that all those listed related to the physical condition or efficiency of the vessel.

(3) A fortuitous event such as an attack by pirates was within “the spirit” of the clause.

(4) Even if “default of men” did not include inadvertent failures, the sweeping up clause meant that the disputes should not be determined on the basis of this “fine distinction”.

(5) There had indeed been a refusal or failure by crew to fulfil their duties, which was in turn caused by the duress to which they were subjected by the pirates.

(6) Finally, it was necessary to consider the “effect” of piracy and not just the event itself: just as the capture might have led to an off-hire event such as grounding, it could (and did) lead to the off-hire event of the crew failing to fulfil their duties, thereby immobilising the vessel just as much as if they had been struck down by typhus, there were insufficient crew to work the vessel or she had run aground.

Mr Justice Gross rejected all of those arguments in short order.  He said:

“Intuitively, as a matter of indelible impression and in agreement with the tribunal, I think that seizure by pirates is a “classic example” of a totally extraneous cause.  Suffice to say with regard to “average accident” that Charterers’ submissions gain no force from the wording “any other cause”; for the reasons already canvassed there was here neither an “accident” nor an “average accident” and Charterers’ case cannot be rescued by the sweep up wording (or “spirit”) of the clause.  I do not think there is only a “fine distinction” between the narrower and wider constructions of “default of men”, still less a distinction that would bring Charterers within the sweep up wording.  I confess I regard as unreal the notion that the Officers’ and crew’s failure to carry out their duties under duress of pirates was equivalent to a refusal to perform those duties”.

Therefore, while piracy is a recognised peril of the sea, it was not an off-hire event covered by clause 15 and hire continued to be payable. 

There was also a bespoke clause on “Seizure/Arrest/Requisition/Detention”. Unfortunately for Charterers, even that clause was insufficient to cover seizure by pirates.  That fact, however, did not justify departure from the proper meaning of clause 15. 

As Mr Justice Gross pointed out, parties would do well to make express provision for piracy when fixing future charterparties; that would hold true even if this matter goes to the Court of Appeal or beyond. 

James Watthey


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