The shipping industry has seen frequent disputes between owners and charterers with respect to speed and consumption due to unstable ship or weather conditions. Generally, for the settling of disputes, a third-party routing company is employed to generate a performance report based on their accurate statistics and expert calculations. In the meantime, agreement on arguable issues have been clearly established in recent charter parties. Specific provisions on good weather thresholds, performance warranties, factors of adverse/favorable currents or the way to calculate speed and fuel consumption have led the arbitration to rule in favor of owners in the case of conflicts, even against third-party reports, as showcased by the following two cases.

I.    London Arbitration 26/19

1.    Relevant provisions

Clause 46 – Deductions

Charterers are entitled to deduct from last sufficient hire payments only value of bunkers on redelivery. Owners’ expenses to be covered by Owners with agents directly unless Owners request Charterers to do so, in which case such amount to be deducted from next hire payment.

Clause 67 – Weather Routing

The Charterers may supply an independent weather bureau advice to the Master, during voyages specified by the Charterers and the Master shall comply with the reporting procedure of the weather bureau. However, the Master remains responsible for the safe navigation and choice of route. Alternatively, Charterers have the option to instruct the Master to report daily to a weather bureau during the execution of sea voyages. The weather bureau will subsequently produce a performance analysis report. Evidence of wind and sea including current/tide conditions to be taken from Vessel’s logs and from independent weather reporting bureau. The independent weather reporting bureau to be appointed by Charterers for their account. This does not preclude Owners from appointing their own independent weather reporting bureau for Owners’ account which evidence along with Vessel’s evidence shall also be taken into consideration by all parties. In case of Vessels’ speed/consumption deficiency, Charterers to arrange for Vessel’s performance/evaluation, same to be strictly in accordance with English law/practice.

Clause 74 – Vessel Description

SPEED/CONSUMPTION ARE ABOUT, UNDER GOOD WEATHER CONDITION’ I.E. THE WINDS NOT EXCEEDING BEAUFORT 4, NO DECK CARGO, NO SWELL, NO ADVERSE CURRENTS, THE SEA STATE UP TO DOUGLAS SEA SCALE 3 (MAXIMUM 1.25M).

THE WORD ABOUT IN SPEED/CONSUMPTION REFERS TO AN ALLOWANCE OF +/- 0.5 KNOTS ON SPEED AND +/- 5% ON BUNKER CONSUMPTION RESPECTIVELY BOTH ALWAYS IN VESSEL’S FAVOUR. ANY GAIN ON TIME AND/OR CONSUMPTION TO BE SET OFF AGAINST LOSS OF TIME AND/OR CONSUMPTION – IF ANY.

- ABOUT 12.00 KNOTS ON ABOUT 22.0 MTS IFO B- PLUS 0.1MT OF MGO ABOUT 12.00 KNOTS ON ABOUT 25.0 MTS IFO L- PLUS 0.1MT OF MGO.

- ABOUT 12.50 KNOTS ON ABOUT 24.0 MTS IFO B- PLUS 0.1 MT OF MGO ABOUT 12.50 KNOTS ON ABOUT 27.0 MTS IFO L- PLUS 0.1MT OF MGO.

- ABOUT 13.50 KNOTS ON ABOUT 28.0 MTS IFO B- PLUS 01MT OF MGO ABOUT 13.50 KNOTS ON ABOUT 31.00 MTS IFO L-PLUS 0.1MT OF MGO.

IN PORT: 5 MTS FOIL – 0.1 MTS MGO PD.

2.     The dispute

A dispute arose concerning the performance of the vessel in respect of which charterers made a deduction from hire, relying on a report produced by the independent weather bureau they engaged pursuant to clause 67 of the charterparty (the weather bureau). The owners said that the deduction was unlawful because it was in breach of clause 46, and in any event the vessel had not underperformed. The charterers had either given the wrong instructions to the weather bureau, or possibly the weather bureau had ignored the actual charterparty terms, favouring their own methodology. Accordingly, the owners brought arbitration proceedings claiming the US$7,257.16 deducted by the charterers.

The charterers said that clause 46 dealt with bunker adjustments from the last hire payment and was not a clear and express bar to their right to equitable set-off in respect of a performance/consumption claim. In any event, the clause did not preclude the charterers from pursuing an independent damages claim. The weather bureau engaged by the charterers was a respected professional weather/routing services company, which had to work with charterparty terms, not clear in themselves, and provided a professional assessment.

3.     The decision

The tribunal held that the charterers’ suggestion that clause 46 was solely concerned with the value of bunkers on redelivery was an attempt to turn the clause on its head. The first sentence, of a clause headed “Deductions”, provided “Charterers are entitled to deduct from last sufficient hire payments only value of bunkers on redelivery”. On a true construction, the clause was precisely a bar to any deductions being made other than those expressly provided therein. The purpose of the clause was to ensure that the charterers pursued damages claims independently, thereby protecting the owners from potentially iniquitous ad hoc deductions from the final hire payment under the guise of equitable set-off. Other than where the owners requested the charterers to cover certain owners’ expenses, the clause permitted no deductions other than the value of bunkers on redelivery. Accordingly, the charterers were in breach of clause 46 for making an unlawful deduction from hire.

As to the charterers’ performance claim, the tribunal wanted to first establish the actual warranty given by the owners to determine: (a) the speed and consumption yardstick; and (b) the benchmark weather conditions in which performance was to be measured. The warranty contained in clause 74 provided that, in the laden condition, the vessel would perform at a speed of about 13.5 knots on a corresponding IFO daily consumption rate of about 31 tonnes. As clause 74 permitted an allowance, in owners’ favour, of 0.5 knot for speed and 5 per cent on consumption for the moderator “about”, in effect owners warranted that the vessel would perform at a minimum average speed of 13 knots in good weather consuming a maximum average daily consumption of 32.55 tonnes IFO in good weather.

Good weather was defined by clause 74 as: winds not exceeding BF4, no deck cargo, no swell, no adverse currents and sea state up to DSS3 (maximum 1.25 m). As the charterers had rightly pointed out, the condition “no swell” was problematic because swell in the oceans was omnipresent. Literally, therefore, “no swell” meant that all ocean voyages would otherwise be excluded from assessment, which clearly was not the intention of the parties in their choice of words. Bearing in mind that swell would rarely, if ever, have a positive effect on performance, in order to give meaning and effect to the expression, the tribunal was satisfied that the intention was that periods of adverse swell only should be excluded. Accordingly, the contractual benchmark conditions in which performance might be measured were as follows:

(a) in winds not exceeding BF4;

(b) no deck cargo;

(c) no (adverse) swell;

(d) no adverse currents;

(e) sea state up to DSS3 (maximum 1.25 m).

As there was no mention of positive current in clause 74, and the clause operated perfectly well without the need of any such mention, when adverse current was encountered, such periods were to be excluded from cumulating benchmark conditions. However, when a positive or beneficial current was encountered, such periods were to be included without adjustment. For the avoidance of doubt, in the absence of a protocol dealing with how favourable or beneficial currents might be adjusted, no account could be taken of any perceived benefits to be gained therefrom. Accordingly, on a true construction of clause 74, the owners warranted that the vessel would perform at a minimum average speed of 13 knots consuming no more than 32.55 tonnes IFO daily, in benchmark conditions. The vessel was to be excused from assessment if one or more benchmark conditions were absent.

The charterers had submitted that performance was to be assessed in accordance with the provisions of clause 67, which set out the specific regime that was to apply. Central to the operation of that assessment scheme was the weather bureau (consultant) appointed by the charterers. The charterers submitted that the clause provided them with an option whereby the weather bureau would produce a performance analysis incorporating their own data. As that option was clearly exercised, the performance assessment and evaluation of the weather bureau was therefore binding on the owners.

In considering the charterers’ submission it was necessary to test the weather bureau’s methodology for compliance with English law and the warranty provisions. There was no doubt that the weather bureau paid lip service to the English authorities in assessing vessel performance. They achieved that by referring to cases such as The Didymi [1988] 2 Lloyd’s Rep 108 and The Gas Enterprise [1993] 2 Lloyd’s Rep 352 to support the proposition that any variation in performance found in good weather conditions was to be applied over the whole voyage in all weather conditions. Their report accurately recited warranted speed and consumption values and made an allowance for the moderator “about”. There was no reference to benchmark conditions.

The weather bureau introduced a current factor of 0.1 knot, to reduce the average speed achieved from 13.03 knots to 12.93 knots. Such a methodology was inconsistent with the parties’ agreement in that it ignored the benchmark conditions agreed and was, accordingly, non-compliant with the warranty given by the owners. Disregarding the detail of the methodology, removal of the rogue current factor reinstated the good weather speed achieved to 13.03 knots, which fell within the contractual yardstick and supported the owners’ case.

Accordingly, the charterers’ defence failed and the owners’ claim succeeded.

II.    London Arbitration 27/19

The subject vessel was chartered on an amended NYPE form and the charterers deducted a sum of US$22,650.17 from hire relying on a weather bureau report on time loss and overconsumption.

1.     Relevant provisions

Clause 46 – of the charter provided

“It is understood, that notwithstanding anything to the contrary herein, warranty applies only to speeds and consumptions as stated above under good weather condition, smooth sea, without exceeding Beaufort Scale wind force 4 or Douglas Sea State 3, without adverse current.”

Clause 77 – provided

“Evidence of the weather conditions to be taken as reported daily on the noon position report to the Charterers. Douglas Sea State to be defined as per WMO publication No 8/Mariner’s Handbook NP100.”

2.     The dispute

The weather bureau identified four days as good weather days on the voyage, namely 18 and 20 April and 2 and 7 May. The owners listed a number of reasons why those days were not in fact good weather days:

(a) There were adverse currents on 18 and 20 April.

(b) 2 May should be excluded because there were adverse currents and significant wave heights between 1.6 and 2.3 m, which exceeded the maximum wave height for Douglas Sea State 3.

(c) 7 May should be excluded because the significant wave height was recorded at 1.3 m at 17.00 which exceeded the maximum wave height for Douglas Sea State 3.

(d) Even if time on 7 May from 06.00 to 18.00 was good weather, the 12 hours recorded was not a sample of sufficient size to be representative of the voyage in its entirety, being only 2.106 per cent of the total voyage or 1.04 per cent of the entire distance steamed by the vessel while on hire.

(e) The weather bureau had wrongly used favourable currents to reduce the vessel’s good weather performance.

Moreover, the owners objected to the fact that in calculating the vessel’s performance, the weather bureau had split the voyage into four separate parts whereas they should have taken an average of all four.

3.     The decisions

Although there were periods of adverse currents during 18 April, the weather bureau considered that a good weather day because, according to their six-hour analysis, the net current over the 24-hour period to noon on 18 April was positive. They had presumably reached that conclusion by simply aggregating the current entries in their report for each of the six-hour periods in the 24-hour period to reach a marginal net positive figure. Two of the four six-hourly entries were, however, negative while an entry for 10.00 on 18 April reported an adverse current of 0.35 knots. That was not included in the aggregation of the six-hourly figures but if it had been the overall current figure for the day was negative. That highlighted a difficulty with the weather bureau’s approach for a single 24-hour period because even using a six-hourly analysis no accurate allowance was made for currents during periods between the six-hourly entries. Accordingly, the weather bureau’s approach was contrary to the warranty in the charter as it had the effect of using for the calculation of the vessel’s performance periods of as much as half a day’s conditions that the parties had agreed to exclude (so that a day with 11 hours and 59 minutes of adverse conditions might still be considered “good”).

The weather bureau report wrongly allowed the charterers the benefit of favorable currents to reduce the good weather performance speed (London Arbitration 21/18 (2018) 1013 LMLN 1, followed). Similar considerations applied to 20 April. On 2 May the wave heights recorded exceeded the standard that both parties agreed on. The day was not, therefore, one of good weather conditions. As to 7 May, the tribunal held that a period of less than a full day was an insufficient sample to adequately assess the vessel’s performance over a voyage of 7,284 miles that lasted for 25.77 days.

Accordingly, there were no periods of contractual good weather on the relevant voyage, and consequently the charterers were not entitled to the deduction from hire.

III.    Conclusions

These two cases have raised a number of important legal and commercial issues for Members to consider when defending speed and consumption claims.

First, clarification of the term “good weather conditions” should be included. Some routing companies may produce the performance report by their own approaches without considering the good weather described in charter parties. The tribunal held in both cases that with “no adverse currents” specified in the contract, those periods should not be identified as good weather days. The six-hour analysis in the second case was further criticized as the conclusion was reached in an unreasonable way.

Since positive/favorable currents were not mentioned in the provisions, pursuant to the decisions, the vessel’s speed in such periods should not be debited for performance calculations. Although the author noticed some arbitrators have ruled for such inclusion in earlier cases, most recent decisions have rejected charterers claiming a benefit for favorable currents. Many other issues were discussed as well – whether the right of equitable set-off can be excluded through express terms; how many hours of good weather can be a sample of sufficient size to be representative of the entire voyage; and whether a voyage can be split into separate parts when assessing performance.

Additionally, the decisions have highlighted that performance report from a routing company can be wrong and those errors can be corrected. Instead of hurrying to another routing company to prove the charterer wrong, owners should first correct the report (such as wrong identification of good weather days or wrong calculations) before taking any other steps.

Anyways, even though the performance report can be presented as expert evidence, the construction of contractual provisions is of more significance as to speed and consumption disputes. The tribunal will take account of both parties’ intentions when making contracts and rule accordingly if definite agreements are reached and expressly provided. Therefore, to better protect the Members from any doubt or potential legal disputes, it’s advisable to carefully draft the clauses containing warranties.

For further information, please contact your manager at the Club.