CONTENTS
The Owners (Bulk Trident Shipping Ltd) chartered out the MV Anna Dorothea to the Charterers (Fastfreight Pte Ltd)[1], on an amended NYPE 1993 form with additional clauses, for one time charter trip carrying a bulk cargo from East Coast of India to China.
Clause 11 of the Charterparty required the charterers to pay hire instalments every 5 days in advance, at the daily rate of USD20,000. Clause 11 also included the following wording:
“Notwithstanding of the terms and provisions hereof no deductions from hire may be made for any reason under Clause 17 or otherwise (whether or alleged off hire underperformance, overconsumption or any cause whatsoever) without the express written agreement of Owners at Owners’ discretion.. Deduction from hire never allowed except for estimated bunker on redelivery” (the “no deduction” amendment).
The Charterparty also contained off-hire Clause 17 (as referenced in Clause 11) and the BIMCO infectious or contagious diseases clause among the additional clauses (“Clause 67”). Clause 67 also included an off-hire provision for all time lost as a result of the listed events.
The Facts
On the reported facts at least, the Vessel loaded in India without a hitch and arrived at the disport, Lanqiao in China on 4 May 2021. However, on 1 May, three crew members testing positive for Covid-19. The Vessel was then delayed in berthing and ultimately, not re-delivered to the Owners until the end of August 2021.
The Charterers relied on Clause 67 and contended that the Vessel was off-hire as a result of crew testing positive, for the entire 120 period as from 1 May through to re-delivery on 28 August. Thus, Charterers did not pay hire to the tune of USD2,147,717.79.
Partial Final Arbitration Award
In addition to disputing the off-hire period on the facts, Owners sought an interim award for the hire, relying on the “no deductions” amendment at Clause 11. Owners argued that Charterers were not entitled to retain the hire absent Owners’ express written agreement, which agreement had not been given.
In response, Charterers contended that the “no-deduction” amendment did not apply. Essentially they argued that the “no deductions from hire” language in Clause 11 pre-supposed that hire was due and payable in the first place. But as the Vessel was off-hire as at the hire installment date(s), the obligation to pay hire was suspended (as per The Lutetian[2]). As such, Charterers did not pay hire and thus had not made a “deduction”.
The Tribunal found in Owners’ favour and concluded that Charterers’ interpretation of the “no deduction” amendment is not what commercial parties would have understood “no deductions from hire” to mean. The overall intention was to ensure that the Charterers could not withhold hire without the Owners’ agreement. The Tribunal held that this “clear intention” arose from some or all of the following language in the “no deduction” amendment (emphasis added):
The Tribunal also concluded that The Lutetian was of no assistance to Charterers, since the charterparty in question there did not contain any provision along the lines of the “no deduction” amendment to Clause 11.
Appeal to the High Court (Commercial Court)
The Charterers appealed the interim partial award to the Commercial Court (Henshaw J). The question of law to be considered was:
“Where a charterparty clause provides that no deductions from hire (including for off-hire or alleged off-hire) may be made without the shipowner’s consent: is non-payment of hire a “deduction” if the Vessel is off-hire at the instalment date?”
The Judge concluded that the answer was “yes” and upheld the Award. The Tribunal had correctly applied the ordinary principles of contractual interpretation. Whilst ideally Clause 11 would have referred to no “withholding” of hire rather than no “deductions”, the reasonable and commercial understanding of the “no deduction” provision was to impose a “hell or high water” absolute payment obligation[3], thereby limiting any exercise of rights Charterers would normally have had under the off-hire provisions.
Having so concluded, the Judge decided he did not need to reach a view on whether or not to follow The Lutetian. He did however also observe the absence of any “no deduction” language from The Lutetian, such that it could not provide an answer to the question posed.
Commentary
This is perhaps an unsurprising decision given the wide wording of Clause 11 (indeed the Tribunal went so far as to say it might even be “said to suffer from overkill[4]”), but a salutary reminder to charterers that tribunals and the Courts are giving effect to these types of clauses. Indeed, the Tribunal observed that these provisions had, in their experience, become increasingly common to guard against spurious / alleged off-hire deductions[5].
Although the Owners continued to perform in this instance, given the absolute obligation to pay hire on the due date, the Charterers were running the risk that Owners may have triggered the anti-technicality provision of Clause 11 and, potentially, exercised their right of withdrawal absent payment.
Nordisk is always available to assist its members vis a vis their rights and obligations to pay and receive hire.
[1] Fastfreight v Bulk Trident Shipping [2023] EWHC 105 (Comm)
[2] Tradax Export SA v Dorada Compania Naviera, QBD Comm Ct [1982] 2 Lloyds Rep 140
[3] Footnote 1 above, at paragraph 39
[4] Footnote 1 above, at paragraph 18
[5] Footnote 1 above, at paragraph 19
By Caroline Lindfors