Performance claims post - Divinegate

Recent London arbitration decisions show that, while the good weather method remains the orthodox route for vessel underperformance claims, alternative analyses may be accepted where they are grounded in reliable expert evidence and sound engineering principles.

The traditional approach to establishing underperformance is the good weather method, as set down in The Didymi[1] in the late 1980’s. However, the possibility of advancing claims on an alternative basis, where the cause of underperformance is at least partly attributable, to for example, hull fouling, is not new. 

In 2022, Ambrose J in The Divinegate[2] accepted that the good weather method was not the only possible way to establish underperformance. However, the case left open the question of what alternative method(s) might be accepted, whilst dismissing the ‘RPM’ method. See Nordisk’s previous circular article on The Divinegate. 

Since then, there have been a series of reported London Arbitration decisions that have considered underperformance claims. London Arbitration 1/26 is the first published decision in which a tribunal accepted an alternative method of analysing performance.  

In London Arbitration 4/25, charterers claimed underperformance, relying on weather routing company reports that did not properly apply the parameters of the performance warranty. The reports defined good weather as intervals during which, for “most of the day”, winds were Beaufort force 4 or less and swells were low.

Although the tribunal considered that the slip and RPM on both voyages confirmed that the vessel was suffering from a hull impediment, most likely fouling, which precluded it from achieving the minimum warranted speed, it held that the weather routing reports did not assist in reaching that conclusion.

“Neither report conformed with the benchmark conditions required by the warranty nor offered any plausible explanation to support the evaluation of underperformance. Without a verifiable evaluation of any loss arising from the tribunal’s findings, the deductions were unsubstantiated.”

In London Arbitration 1/26 the charterers of the vessel under a time charter trip pursued a claim in off-hire on the basis that the vessel’s hull was fouled on delivery, causing time to be lost. 

The tribunal agreed there was strong evidence of hull fouling on delivery. Although there was insufficient good weather to meet the requirements of the charterparty, the charterers adduced reports from a marine engineer in support of their claim. The charterers’ claim succeeded in full.

The tribunal held that, where undoubted substantial hull fouling existed, it appeared obvious that this would have a negative effect on performance. If the likely impact on speed and consumption could be established by calculations made according to “well-accepted naval architectural and marine engineering principles (as well as common sense)”, that evidence could be relied upon to establish the effect of the defect and losses incurred. Importantly, the tribunal considered that this conclusion was not displaced either by the absence of sufficient good weather or by an express restriction on extrapolation in the warranty.

“It was unjust that a claim for under-performance had to be excluded simply because any such qualification was not satisfied if satisfactory expert evidence on the consequences of a defect was adduced and was based on well-established scientific principles, as well as common sense.”

By contrast, in London Arbitration 4/26 the charterers’ claim for underperformance, advanced on the basis of an all-weather report prepared by a weather routing company, failed for lack of evidence.

The tribunal was not persuaded that dive footage from an underwater inspection performed 20 days after delivery established that there was pre-existing fouling on delivery.

Commenting on the all-weather reports, the tribunal held that:

1. the methodology applied was non-contractual, it failed to apply certain thresholds;
2. “for reference reports” were not, as a matter of industry practice, relied upon to conduct a reliable and proper performance analysis.
3. an all-weather report did not reflect the weather impact on performance and thus carried little, if any, evidential weight.

“By arbitrarily extending the benchmark conditions against which performance was measured, the [weather routing company] would necessarily have required an allowance for the additional bunker consumption attributable to increased weather resistance.”

This decision was also the first published decision to touch on EU ETS/FuelEU. However, because the charterers’ defence to the owners’ claims for EU ETS/FuelEU depended on their underperformance claim, those issues were not examined in detail.

Finally, London Arbitration 5/26 provides guidance on clauses which purport to prohibit extrapolation. In that case, the tribunal held that a clause which stated “no extrapolations to be made for weather conditions other than those described above” was not sufficiently clear to prohibit the extrapolation of performance based on analysis in good weather.  The tribunal considered that it would not make sense to have a performance warranty and then exclude its operation by prohibiting extrapolation. Very clear words would be required to do so.

What conclusions can be drawn? 
The threshold remains high for parties seeking to advance a claim for underperformance on the basis of an alternative method of analysis.

Although all-weather reports are commonly presented by charterers in support of claims where there has been no good weather, London Arbitration 4/25 and 4/26 both indicate such reports are unlikely to get a charterer over the line. These decisions will be welcomed by owners. 

At the same time, London Arbitration 1/26 provides a warning that the absence of good weather will not necessarily be the end of the matter if there is reliable and compelling evidence.

The developing position therefore appears to be one of caution rather than departure. The good weather method remains central to underperformance claims, but these decisions suggest that tribunals may be prepared to look beyond it in carefully evidenced cases. 

[1] Didymi v. Atlantic Lines and Navigation (The Didymi) [1987] 2 Lloyd’s Rep. 166 and [1988] 2 Lloyd’s Rep. 108 (C.A.).

[2] Eastern Pacific Chartering Inc v Pola Maritime Ltd (The Divinegate) [2022] EWHC 2095 (Comm)