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Enhancing standardisation and legal certainty through standard charterparty contracts – the NYPE 2015 experience

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Chapter 5

Enhancing standardisation and legal certainty through standard charterparty contracts

The NYPE 2015 experience

Dr Theodora Nikaki* and Professor Barış Soyer**

5.1 Introduction

Standard charterparty contracts invariably reflect the commercial values of international trade and the understanding of legal principles current when they are finalised. As time moves on, it becomes inevitable that amendments are increasingly made to such contracts by utilising ‘rider clauses’ to accommodate changes in ship operations, legal rules, and the parties’ own bargaining strength. The New York Produce Exchange Form Time Charter (commonly known as NYPE), the most widely used form in the dry cargo sector, has followed a similar pattern since its first publication in 1913. Although most recent versions have been introduced,1 the 1946 version is still the most commonly used in practice.

In November 2015 a new version of this form was launched. The product of a co-operative effort between the Baltic and International Maritime Council (BIMCO), the Association of Shipbrokers and Agents (ASBA) and the Singapore Maritime Foundation (SMF), its main aim is to produce a balanced form that reflects contemporary commercial practice and recent legal developments.2 How far this document will be perceived as an adequately balanced document by Owners and Charterers remains, however, to be seen.

Building on the premise that the new version of NYPE introduces amendments for the benefit of both parties to a charter contract, this paper has two main objectives: i) identifying the legal implications of the main changes introduced; and ii) asking how far the opportunity to promote an increased contractual certainty has been achieved. It is worth emphasising that the potential success of NYPE 2015 in replacing its predecessors depends on an array of factors such as financial and commercial gains, market pressures, and familiarity with the workings of the contract, in addition to the legal certainty it would promote. Nevertheless, the authors are convinced that a comprehensive legal analysis of the NYPE 2015 is a vital starting point in assessing its likely direction of travel in the years to come. It goes without saying that this analysis will be based primarily on English law, the system chosen most often to govern NYPE charters. That said, reference to other jurisdictions will be made when necessary.

5.2 Reclassifying and redrawing the parties’ obligations

5.2.1 Owners’ obligations prior to delivery

The delivery of the chartered vessel to the Charterer is a significant stage in a time charter, ‘placing the services of the chartered vessel’s Master, officers and crew at the Charterer’s disposal, so that the Charterers may give orders as to the employment of the vessel’.3 NYPE 1993, like most standard contracts, requires Owners to serve a notice of readiness on Charterers prior to delivery. But NYPE adds to this. In addition to notice of readiness, clause 2(d) of the NYPE 2015 also requires Owners i) to keep Charterers informed of the vessel’s itinerary; and ii) following the tender of notice of readiness, to give or allow to be given to the vessel only such further employment orders, if any, as are reasonably expected when given to allow delivery to occur on or before the date notified.

The motivation is to enable Charterers to be able to predict the date of delivery more accurately. But the additional obligations imposed on the Owners could also incidentally provide the Charterer with an extra opportunity to terminate the charterparty even if the vessel is delivered in accordance with the cancellation provision in clause 3. Imagine, for instance, that the vessel is delivered on time, but the Charterers later find out that the itinerary provided was inaccurate. Does the Charterer have a right to terminate the charterparty for that breach? The answer depends entirely on how this obligation is classified, given that the language adopted in clause 2 is by itself not conclusive. In the context of charterparties, terms that indicate the time at which the chartered vessel is expected to be ready to start the chartered service have traditionally been held to be conditions.4 On the premise that providing information with regard to movements of the ship prior to delivery would have a bearing on the expected delivery date of the arrival, one might be tempted to argue that this new obligation should also be construed as a condition. The authors, on the other hand, believe that this is unlikely. With a term specifying the ‘expected arrival of the chartered vessel’, the Owners by making a reasonable estimate in good faith undertake to do everything in their power to deliver the vessel to the Charterer at a particular point in time. Conversely, by agreeing to keep Charterers informed of the vessel’s itinerary, the Owners undertake simply to provide additional information to the Charterers which will help them to assess the likelihood of keeping to the notice period given in the previous part of clause 2(d) with regard to the delivery of the vessel. The obligation on the part of the Owners here is capable of being broken either in a manner that is trivial or in a way that is so fundamental as to undermine the whole contract. For example, it might be possible that the Owners simply forgot to report a minor alteration in the itinerary, or they deliberately provided false information to conceal the fact that the vessel had been to a port in breach of sanctions. Put differently, the consequences likely to result from the Owners’ breach are rather uncertain. In the context of modern contract law jurisprudence, obligations of this nature are likely to be construed as innominate (intermediate) terms rather than conditions.5It is therefore submitted that breach of the new obligation could afford the Charterer the option of terminating the contract, provided that it can be demonstrated that the breach is likely to deprive him ‘of substantially the whole benefit which was the intention of the parties that he should obtain from the contract.’6

5.2.2 Revamped speed and consumption warranty

Several changes have been made to the provision dealing with performance of the chartered ship. Most fundamentally, Owners now undertake that the vessel is capable of performing at the speed and with the fuel consumption set out in the charterparty, not only at delivery, but also throughout the charter period.7 Therefore, a continuing warranty is created which is akin to the position in most tanker charterparties.8 However, similar provisions that appear in tanker charterparties usually provide a mechanism to review this performance review over a representative period (usually either a year, or the period between successive drydockings). This allows the Owner to get the benefit of the ‘downhill’ passages (e.g. with following current and weather) as well as the uphill. However, the relevant provision in the NYPE 2015 provides no such mechanism. This could potentially fuel disputes as it seems that there is nothing stopping the Charterers relying on a more selective review, i.e. including only uphill passages.

Normally an undertaking of this nature is qualified in charterparties by limiting the warranty to specified good weather conditions. Clause 12 of the new NYPE performs a similar function; and it is fair to say that it does a better job than its predecessors by making reference not only to the Beaufort Scale for wind but also to the Douglas Sea Scale for sea state in stipulating what amounts to ‘good weather’.

So far so good. However, we suggest that the opportunity to clarify the scope of the ‘good weather’ qualification has not been fully utilised, particularly in two respects. First, clause 12 is silent as to the effect of adverse currents in a ship’s performance. Does the fact that no reference has been made to the ship’s performance mean that the potential impact of adverse weather should be disregarded, or should the period in which the ship encounters adverse currents be excluded from the calculation of good weather periods? No firm judicial view has been expressed on this point,9 and the matter is certainly open to debate.

The other uncertainty is for how long ‘good weather’ should continue for it to be considered as being ‘admissible good weather’ for the purposes of this provision. Can, for example, a short period of ‘good weather’ (e.g., a few hours) be taken into consideration? Or is it necessary to monitor performance over a longer period of ‘good weather’ in order to provide a fair assessment of the engine’s capacity and consumption? In a recent NYPE case, Polaris Shipping Co Ltd v Sinoriches Enterprises Co Ltd (The Ocean Virgo),10 Teare J, rightly as far as the authors are concerned, ruled that reference to ‘good weather’ in a clause of this nature should not necessarily be taken as reference to a ‘good weather day of 24 hours from noon to noon’. The judgment is useful in indicating that a period of less than 24 hours of ‘good weather’ is sufficient for the purpose of assessing the performance of the ship; but it is still far from clear how long the period of ‘good weather’ should continue so as to be taken into account in the calculations. Clause 12 could have addressed this matter to avoid similar kinds of disputes arising.

On a positive note, it needs to be stressed that clause 12 provides a useful mechanism to resolve disputes on inconsistencies concerning the weather conditions between log book entries and independent weather bureaus. In the past, in case of any such inconsistency, the tendency was to defer to the log book entries; but in a recent dispute, the arbitrators drew attention to a potential problem that such approach might cause by saying: ‘The assessment of sea conditions was not an accurate science and log entries were at times made with half an eye on charter warranties.’11 Despite the potential for a dispute on this point, most charterparties are silent as to how such difficulties can be addressed. Clause 12(e) of NYPE 2015, on the other hand, handsomely stipulates:

In the event that the Owners contest such claim then the Owners shall provide copies of the Vessel’s deck logs for the period concerned and the matter shall be referred to an independent expert or alternative weather service selected by mutual agreement, whose report shall take Vessel’s log data and the Charterers’ weather service data into consideration and whose determination shall be final and binding on the parties. The cost of such expert report shall be shared equally.

5.2.3 Punctual payment of hire

In time charterparties, regular and punctual payment of hire in advance is fundamental from the perspective of the Owners, as such payments are essential for maintaining the cashflow to cover the running expenses of the chartered vessel.12 In practice, disputes and litigation often arise over the consequences of the Charterers’ failure to pay hire in full and on time. In particular, it has been debated whether such failure amounts to breach of a condition entitling Owners to terminate the charterparty and claim damages, without having also to prove some separate repudiatory act on the part of the Charterers.13 This issue has been recently settled by the Court of Appeal in Spar Shipping AS v Grand China Logistics Holding (Grp.) Co,14 where it was held unanimously that the punctual payment of hire was not a condition and that such a failure per se merely entitled Owners to withdraw the vessel from service in accordance with the withdrawal clause.15 If the Owners wished to also claim damages, they had either to prove the Charterers’ repudiation or renunciation of the charterparty,16 or to contract on special terms to this effect.17

In the light of the slightly uncertain state of law in this area,18 the drafters of NYPE 2015 decided to reformat the relevant clause to make clear that non-payment of hire by itself entitled Owners not only to withdraw the vessel but also to claim any damages they might have suffered as a result of early termination in a falling market.19 Owners thus now have an express right to claim damages even if the breach of the Charterers’ obligation does not amount to repudiatory or renunciatory breach. The objective of such damages is to place them, so far as damages can, in the position they would have been in had the charterparty contract been performed. This means in practice that Owners can claim their losses for the whole of the remaining charterparty period.20 In terms of assessment of damages, if there is an available market,21 the Owners’ damages will amount to the difference between the contract rate and the market rate for the vessel for the balance of the charterparty period.22 Or absent such a market, Owners’ damages will be assessed by reference to their actual loss – namely, the projected actual earnings from the withdrawal to expiry of the charterparty.23 In any case, Owners must take all reasonable steps to mitigate their loss consequent upon the Charterers’ breach of their payment obligation24 and are not therefore entitled to claim loss of profits if they decide not to go to the market.25 It should also be clarified that it is almost inconceivable that this clause amounts to an unenforceable penalty, as the sum stipulated as a consequence of the Charterers’ breach of payment obligation is neither exorbitant nor unconscionable.26

The wording of the clause promotes a consistent approach to the Owners’ rights following the Charterers’ failure to meet their payment of hire obligation. Put simply, Owners are now equally entitled to claim damages whether the charterparty is governed by the laws of jurisdictions which regard such an obligation as a condition, such as New York,27 those that do not such as England,28 or civil law countries which do not in any case recognise the common law classification of terms as conditions, warranties and innominate terms.29 The right to claim damages is contractual and can be invoked irrespective of the approach taken by the national courts regarding the Charterers’ obligation to pay hire.

Owners who opt to exercise their right to withdraw the vessel and claim damages must, however, bear in mind that they are entitled to invoke these contractual rights only after the expiration of the grace period specified in clause 11(b).30 In practice this means that, in contrast to NYPE 1993,31 Owners must first give three banking days’ written notice to the Charterers to rectify the failure to pay hire and only withdraw the vessel if the deadline is not met. If, the Owners were to withdraw the vessel as soon as the Charterers failed to pay, their conduct would amount to repudiation of the charterparty and entitle the Charterers not only to terminate the charterparty, should they wish to do so, but also to claim damages arising out of their loss of the ship’s services during the remainder of the charter period.32

Two additional points must be also made regarding the NYPE 2015 grace period provision. The first observation relates to its scope. The drafters have moved away from the ‘anti-technicality’ clause found in NYPE 1993, which limits the applicability of the grace period to failures to make punctual payment of hire due to ‘oversight, errors or omissions on the part of the Charterers or their bankers,33 and replaced it with an unqualified one. This is certainly an interesting development which is at odds with the ethos which led the development of ‘anti-technicality’ clauses in the first instance; but perhaps it reflects the reality that proving that late payment was the result of negligence or oversight could be a tall order.

The second point relates to the suspension of services by the Owners in the event of non-payment. A novelty of the NYPE 2015 is that this right is not subject to the grace period; it can thus be exercised immediately and without notice.34 This solves a problem Owners encountered when using NYPE 1993, which owing to a drafting glitch did not give them any entitlement to suspend services for intentional non-payment. The reason was that this right was to be exercised ‘after the expiry of the grace period’, but the latter did not apply at all to intentional non-payment of hire. In such a case Owners were disadvantaged as, even though suspension might advance their interests (e.g., if the cargo was already on board), the only right they had under NYPE 93 was to withdraw the vessel.

So far, the prognosis is good. The new clause 11 may, however, give rise to potential litigation on issues such as the definition of the ‘remainder of the charterparty’. Let us assume that the balance of the charterparty at the time of the withdrawal of the vessel is 24 months, but that the charter allows either party to cancel if war breaks out involving certain named countries; and that such a war duly occurs 12 months later. Then the question would be whether the Owners would be entitled to claim loss of hire for only 12 months or for the whole 24. In such a case, it is submitted that the spirit of the majority decision of the House of Lords in Golden Strait Corpn v Nippon Kubisha Kaisha (The Golden Victory)35 and the compensatory principle would require the outbreak of war to be taken into account, and limit the Owners to 12 months’ lost profit.36

Also, there is a good chance that the parties will litigate over the duration of the grace period, and in particular over the meaning of ‘3 Banking Days.’ The simple reason is that the new grace period clause (clause 11(b)) does not follow a consistent approach when it comes to the definition of the grace period. In clause 11(b), one will find a reference to three Banking Days (as recognised at the agreed place of payment) and to ‘those 3 Banking Days (as recognised at the agreed place of payment and the place of currency of the Charterparty)’.

Furthermore, it is unfortunate that the drafters have missed the opportunity to address the consequences of a series of late payments accepted by the Owners. This issue has been judicially aired by courts in cases such as The Scaptrade,37 where it was held that Charterers were entitled to claim that the Owners might be estopped from exercising their right to withdraw the vessel if they met the rigorous equitable estoppel test. Charterers in that situation have to prove that the Owners had represented unequivocally that they would not enforce their strict legal right to withdraw the vessel in the event of the default of a payment of hire and that in the circumstances it would be inequitable to allow the Owners to enforce that right in regard to the dealings which had taken place between the parties.38 Perhaps a clause similar to the one that appears in SUPPLYTIME 2005 could have been added to the new standard form to clarify that accepting any series of late payments of hire would not prejudice the Owners’ right to withdraw the vessel or suspend services.39 This would have eliminated the prospect of the Charterers relying on the equitable estoppel doctrine in an attempt to prevent Owners from exercising their right to withdraw in cases where they had in the past accepted late performance from Charterers.

5.2.4 Reforming the bunkers clause

As bunkering is also central to the performance of every charterparty, NYPE 2015 includes a very detailed bunkers clause (clause 9) dealing with a variety of issues ranging from the quantity and price of bunkers on delivery and redelivery to the quality of fuel used throughout the charterparty period. Clause 9 on bunkers is a complete redraft of the relevant clause in NYPE 1993 and aims not only to accommodate new IMO regulations40 but also to grant greater flexibility to the parties, where possible.

On the issue of bunkering on delivery and redelivery, the new bunker clause adopts a flexible approach. To that end, it goes beyond the position in the previous NYPE versions and also most of the standard charterparty forms41 to present parties with three options instead of only one.42 With the first option, which reflects the traditional position and has also been set as the default position, Charterers on delivery and Owners on redelivery or termination of the charterparty43 will take over and pay for all bunkers on board.44 The result is that property in any bunkers on board the vessel passes to the Charterers on delivery and to Owners on redelivery/termination.45

The second alternative is novel and is specifically designed for trip time charters, to which the new form applies.46 Taking into account the intended short duration of this type of charter, the pertinent clause provides for the same bunkering arrangements as in a voyage charterparty, by placing on the Owners the obligation to supply the vessel with sufficient bunkers to perform the stipulated time charter trip.47 It will, however, continue to be the Charterers who bear the expense, as they will have to pay the mutually agreed estimated bunker consumption for the trip together with the first hire payment.48 Nevertheless, the originally agreed bunker consumption estimation is not set in stone. At the end of the trip, the actual cost will be calculated and the parties will settle the bill.49 This arrangement undoubtedly gives flexibility to Charterers, which may decide to exhaust all the leeway the trip time charter affords them and make optimal use of the vessel, as happened in BT Star Bulk and Tankers (Germany) GmbH Co KG v Cosmotrade SA (The Wehr Trave).50

The last option aims at avoiding the financial consequences of possible price fluctuations in the bunker market. To that effect, if the parties expressly choose this option, Charterers only have to redeliver the vessel with about the same quantities of bunkers as on delivery.51 Thus, as Charterers will not purchase the bunkers on board from the Owners on delivery, none of the parties will be disadvantaged if the bunker prices have gone up or down at the time of redelivery.52 Moreover, the same clause minimises the risk of imposing a financial burden on any of the parties by providing that the price for any difference in the bunker quantities onboard the vessel on delivery and redelivery will be the price Charterers actually paid for them.53

Although the NYPE bunker clause may seem straightforward, a number of issues will possibly arise if the first option is adopted (by agreement or by default). Matters are usually complicated when the bunker supply contract contains a clause reserving title until the bunkers are fully paid – which is usually the case – and Owners on delivery, or Charterers on redelivery have not paid the full amount to their suppliers.54 Examples of such clauses may be found in the widely used BIMCO Standard Bunker Contract Terms 201555 and also the bunker supply clause recently litigated in PST Energy 7 Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans).56 The same clauses also provide that until full payment is effected, the buyers are in possession of the bunkers solely as bailees for the sellers.57

In such a case, the buyers of the bunkers – Owners on delivery and Charterers on redelivery – may find themselves liable to the bunker suppliers on an number of grounds, including breach of their bunker supply contract,58 or breach of bailment.59 Moreover, they may also be guilty of conversion of the bunkers, as their sale to their contractual counterpart in fulfilment of the charterparty agreement amounts to an act inconsistent with the rights of the suppliers, which deprives them of the use and possession of the bunkers.60

To make things worse, Charterers on delivery and Owners on redelivery may also be sued by the bunker suppliers in the tort of conversion for their assumption of Ownership of the bunkers and/or their subsequent consumption.61 However, they may be protected from such a conversion claim if they prove that they have obtained a good title under s 25(1) of the Sale of Goods Act 1979 (hereinafter ‘SGA 1979’). Owners/Charterers wishing to rely on SGA 1979, s 25 (1) must therefore prove that the following four preconditions, as defined in Forsythe International (UK) Ltd v Silver Shipping Co Ltd (The Saetta)62 and the Ocean Connect UK Ltd v Angara Maritime Ltd (The Fesco Angara),63 are met:

  1. The buyers in possession (Owners on delivery and Charterers on redelivery) obtained possession of the goods with the consent of the sellers/suppliers.64 As the sellers/suppliers will have delivered the bunkers onboard the vessel, this does not pose any issues when the Owners buy the bunkers before they deliver the vessel. It has been, however, debated whether this is also case when the Charterers buy fuel during the charterparty period. This issue has been resolved in The Saetta, where Clarke J (as he then was) held that, although the bunkers are in the possession of the Owners as bailees, they are also in the possession of the Charterers, because the Charterers have an immediate right to possession of them subject only to the Master’s overriding duty for the safety of the vessel.65
  2. There was delivery, within the meaning of SGA 1979, s 25(1), of the bunkers by the Owners on delivery and Charterers on redelivery to their contractual counterpart.66 This requirement has also been discussed and clarified in The Saetta,67 where delivery has been construed as requiring a ‘voluntary act’ by the buyers in possession amounting to delivery.68 This is a question of fact and not of contractual analysis.69 Thus, this precondition will not be met if Owners terminate the charterparty for non-payment of hire, simply because the transfer of the bunkers is involuntary.70 And the Owners, who take possession of the bunkers on termination of the charterparty, will find themselves in an impossible position because they will be held liable in conversion for simply exercising their rights under clause 9(a)(i) of the charterparty contract.
  3. Charterers on delivery and Owners on redelivery received the bunkers in good faith, namely honestly but irrespective of their negligence,71 and without (actual) notice of any lien or other right of the supplier in respect of the goods.72 Charterers on delivery and Owners on redelivery have to establish that there was nothing to put them on enquiry as to the bunker suppliers’ rights (e.g., retention clause) and also that they were not aware that their contractual counterpart as buyers had not paid for the bunkers on board.73
  4. Owners on delivery and Charterers on redelivery were acting in the ordinary course of their business as Owners or Charterers respectively and were doing something (namely, delivering goods pursuant to a sale) which would constitute acting in the ordinary course of business if they were mercantile agents.74

Suppliers are thus entitled to sue their buyers for the price of the bunkers (minus any amounts paid), if their action is based on breach of contract.75 Or, if they elect to bring an action in bailment or conversion as discussed above, they can claim the value of the bunkers when the Charterers (on delivery)/Owners (on redelivery) assumed Ownership and full possession of them.76 When calculating the sellers’ damages in conversion, one should, however, take into account that they only have a limited proprietary interest in the bunkers, and they therefore cannot recover the full value of the bunkers without giving credit for any monies already paid by their buyers.77

Suppliers are also entitled to arrest the vessel to secure their claim.78 What does not help Owners at all in this case is that the ‘non-lien’ clause included in NYPE 2015 does not provide effective protection to them, as also noted in the NYPE 2015 Explanatory Notes.79 This is because the pertinent clause only stipulates that Charterers should not burden the vessel with liens without, however, imposing on them an additional obligation to inform the sellers of the bunkers in writing prior to ordering that the bunkers to be supplied to the Vessel are solely for the Charterers’ account, and that neither the vessel, the Owners nor the Master is a party to the bunker supply contract and no lien, encumbrance or any rights shall arise on the Vessel. It is therefore suggested that the parties supplement the ‘non-lien’ clause with the BIMCO Bunker Non-Lien Clause for Time Charterparties,80 which affords greater protection to the Owners by imposing an obligation to give such a notice to their suppliers before ordering bunkers.81

At this juncture, it is worth noting that Owners and Charterers will face the same difficulties if they also elect the third alternative and the Charterers fail to pay for the bunkers before they redeliver the vessel. Put simply, in such a case, Owners are vulnerable as they may face a lawsuit in conversion for assuming Ownership and possession of the bunkers on board on redelivery82 and also see their vessel arrested by the bunker suppliers. In effect, the Owners may end up paying twice for the same quantity of the bunkers. Although they have already paid the Charterers on redelivery, they may be also asked to pay the bunker suppliers to have their vessel released. To muddy the waters yet further, they may not be able to recover their money back from their Charterers, if, for example, the Charterers have gone bankrupt. The suppliers’ claim in conversion will only fail if they are successful in establishing the preconditions set out in SGA 1979, s 25(1) as discussed earlier.

Moving now to the Owners’ and Charterers’ relationship, it is worth exploring the effect of prior failure by Owners (on delivery) or Charterers (on redelivery) to pay the price of the bunkers before transferring the Ownership and possession of the bunkers to their contractual counterpart. It is submitted that the obligation to pass Ownership of the bunkers on delivery or redelivery in accordance with the terms of clause 9 is not a condition, as the wording of the clause does not evince the parties’ intention to terminate the charterparty if any of them fails to pass Ownership of the bunkers to their contractual counterpart. It is also submitted that it should be classified as an innominate term instead, and thus the consequences – termination and/or damages – will depend on the severity of the breach.83 For instance, if the vessel is arrested as a result of the Owners’/Charterers’ failure to pay the price of the bunkers, the question to be asked will be whether the arrest deprived the Charterers or Owners from the substantial benefit of the charterparty. This is a question of fact to be judged on the particulars of each case.

Furthermore, as the consequences of burning off-specification bunkers can be severe, possibly leading to the breakdown of the vessel’s engines and/or loss of time and expenses of de-bunkering, the same clause also expands the relevant provisions in NYPE 199384 and now regulates in great detail issues related to the quality of bunkers put on board the vessel by the Charterers. In particular, similarly to NYPE 1993, cl 9(d)(i) sets out the requirements the bunkers provided by the Charterers must meet – that is to say, to be of the agreed specifications and grades. The new clause takes it also further to provide that such bunkers must be of a ‘stable and homogeneous nature and suitable for burning in the Vessel’s engines and/or auxiliaries’ and, unless otherwise agreed in writing, of the requirements set out in ISO standard 8217:2012 or any subsequent amendments. Moreover, if the vessel is to trade in emission control areas (ECAs),85NYPE 2015 provides that, for compliance with the pertinent recent emission regulations, the Charterers must ensure that the emission limits are not breached inside the ECA (e.g., that the sulphur content of the bunkers does not exceed the maximum sulphur requirement for the ECA).86

If, nonetheless, the Charterers’ use of unsuitable bunkers causes damage to the vessel, the Charterers will be held liable to the Owners for any loss or damage caused to the Owners or the vessel, which has been expanded to include the off-loading of such fuels and the supply of new bunkers to the vessel.87 In a similar vein, Charterers will have to bear the consequences of their breach of the emissions regulations, as NYPE 2015 imposes an obligation on them to indemnify the Owners in respect of any loss, liability, delay, fines, costs or expenses arising or resulting from the Charterers’ non-compliance with such regulations.88

To sum up, the NYPE 2015 bunkers clause favours Owners, as it sets rather robust rules and procedures related to the quality of the bunkers. It is also a flexible clause which reflects current commercial practices by allowing the parties to choose from a number of bunkering options when the vessel is delivered or redelivered. However, there may be instances when it may prove to be detrimental to the interests of either the Owners or the Charterers. In particular, they may buy the bunkers from their contractual counterpart, but in doing so they may be held liable to the bunker suppliers for conversion for the reasons discussed above, a position they would not normally envisage.

5.2.5 Charterers’ obligation to redeliver the vessel

Timely redelivery is just as important as punctual delivery. Owners make plans for following fixtures based on the expected date of redelivery as stipulated in the Charterers’ notice of redelivery. Any overlap or even any change to the redelivery date provided in the notice of redelivery thus may have detrimental consequences to their plans, since they risk losing their next fixture – as happened, for example, in The Achilleas.89 To complicate matters further, Charterers, who themselves need some degree of flexibility, tend to give Owners approximate notices of redelivery ‘without prejudice’ or ‘without guarantee’90 Such notices have been construed by the courts as allowing Charterers to retain the vessel legitimately later than the notified redelivery date (but within the last permitted date for redelivery under the charterparty),91 thus leaving Owners in limbo until the actual redelivery.

To avoid such uncertainty, NYPE 2015 mirrors the Owners’ duties stipulated in the delivery clause and imposes a series of obligations on the Charterers which are designed to ensure that the vessel is actually returned to the Owners’ service on the redelivery date.92 Charterers are thus obliged to: i) keep Owners informed of the vessel’s itinerary; ii) prior to the arrival of the vessel at the redelivery port or place, tender to the Owners approximate and definite notices of the vessel’s redelivery within the agreed timescale; iii) following the service of such notices, give only legitimate last voyage orders – namely, employment orders which are reasonably expected to allow redelivery to occur on or before the date referred to in the notice.

An interesting question is what the legal consequences of breach of these obligations will be. It is first submitted that the analysis provided earlier of the Owners’ duty to keep Owners informed of the vessel’s itinerary in clause 2(d) also applies to the Charterers’ corresponding duty. In other words, the Charterers’ obligation to keep Owners informed of the vessel’s itinerary should be classed as an innominate term; thus its consequences will depend on the severity of the breach, as above discussed,93 although in practice it is doubtful what the Owners stand to gain from termination of the charterparty at that stage. Their main remedy will be claiming damages; but, of course, remoteness of such damages will often create difficulties in the light of the judgment of the House of Lords in The Achilleas.

In terms of the required notices of redelivery, it is also submitted that, by analogy to the ‘estimated time of arrival’ clauses, the Charterers here implicitly undertake that such notices are to be given honestly and based on reasonable grounds, and that the vessel is in such a position that she can reasonably be expected to be redelivered on that date.94 At this point it is also worth mentioning that under the new formulation adopted in the NYPE 2015 there is no scope for notices to be given ‘without prejudice’ or ‘without guarantee’, as the latest notice tendered by the Charterers must be a definite notice of redelivery. Furthermore, the notice provision imposes on Charterers an implied duty to use reasonable diligence to redeliver the ship by the date stated in the definite notice of the vessel’s redelivery.95 Failure to do so will entitle Owners to claim any damages they may have suffered – namely, the difference between the market rate and the charter rate for the overrun period (if any), but not the Owners’ loss of profits in excess of that amount caused by volatile market conditions, which amounts to an unusual occurrence outside the parties’ contemplation.96

To reinforce the importance of the timely redelivery of the vessel, the same provision goes a step further and expressly restricts the Charterers’ ability to give further employment orders contrary to a notice of redelivery already given; Owners will be entitled to refuse to obey such orders if given. Since the obligation not to give illegitimate orders is regarded as an intermediate term, the Owners’ rights will depend on the severity of the breach.97 For example, if the Charterers persistently refuse to replace their illegitimate last voyage order with a fresh but legitimate one, their conduct may be deemed sufficient to demonstrate that they do not intend to perform their obligations under the charterparty, and therefore the Owners will be entitled to treat the charter as repudiated and claim damages.98 Should the Owners elect to follow an illegitimate last voyage order, then they will be entitled to hire at the charter rate until redelivery, as well as damages for late redelivery amounting to the difference between the contract and the market rate for the excess period.99

As a final note, although this clause is drafted to protect the Owners’ rights to have their vessel redelivered on time, it is still possible to amend it to reverse the situation, especially when market conditions favour the Charterers. The parties can do so if they amend the clause to allow Charterers not only to give illegitimate last orders but also to continue paying the charter rate. Such clauses need to be carefully drafted to expressly vest both rights to the Charterers, as the case was in Chiswell Shipping and Liberian Jaguar Transports Inc v National Iranian Tankers Co (The World Symphony and The World Renown)100 and Petroleo Brasileiro SA v Kriti Akti Shipping Co SA (The Kriti Akti)101 but not in Shipping Corp of India Ltd v NBB Niederelbe Schiffahrtsgesellschaft GmbH (The Black Falcon).102

5.3 Reallocation of risk

5.3.1 Off-hire clause

As stressed by Lord Mustill, in time charterparties the risk of delay is primarily on the Charterers103 Therefore, Charterers’ obligation to pay hire continues as long as Owners commit no breach and nothing happens to put the ship off-hire. Judged from that angle, off-hire clauses in a time charterparty are a device essentially used to shift the risk of delay onto the Owners.104 Given the significant role off-hire clauses play in risk allocation, it is not surprising that the drafters took the opportunity to provide clarification on the wording of the off-hire clause which has been in use for decades.105 Two alterations introduced are straightforward and to be welcomed.106 The first relates to the scope of the exception to the ship being placed off-hire as a result of detention. The earlier version of this clause stipulated that if the vessel’s arrest was caused by events which the Charterers, their servants, agents or sub-contractors were responsible for, the vessel would remain on hire. In NYK Bulkship (Atlantic) NV v Cargill International SA,107 Field J further thought that the word ‘agents’ used in an earlier version of the clause could be extended to sub-Charterers, sub-sub-Charterers and receivers to the extent that they were directly or indirectly delegated to perform the Charterers’ responsibilities. This made commercial sense and was a logical extension, given the contractual matrix in question.108 The new version of the off-hire clause, giving effect to this interpretation, expressly stipulates that the vessel will not be off-hire if arrest is a result of an event which sub-Charterers are responsible for. The other alteration makes it explicit that vessel deficiencies discovered as a result of the chartered vessel being inspected by Port State control and detained as a result now count as an event that places the vessel off-hire. It was generally assumed in the light of the judgment of Rix J, in Andre & Cie SA v Orient Shipping (Rotterdam) BV (The Laconinan Confidence)109 that if the full working of the vessel was prevented by the actions of port authorities (e.g., preventing the ship from sailing due to the fact that cargo discharged contained residues unsuitable for import), that would be an off-hiring event under the earlier versions of the clause which stipulated:

In the event of loss of time from… detention by the arrest of the Vessel… or by any other cause preventing the full working of the Vessel, the payment of hire and overtime, if any, shall cease for the time thereby lost.

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