Nordisk Skibsrederforening

Off hire under Supplytime 2005: A recent Norwegian arbitration award

Nordisk represented charterers in a recent Norwegian arbitration regarding off hire under a modified Supplytime 2005 charter party. Initially the dispute was about whether the provision in clause 13 (c) relating to a vessel being on-hire during transit to and from a yard where the vessel is to be drydocked applied to a transit from the area of operation to a shipyard, where a generator was to be replaced without placing the vessel in drydock. In the end, however, the dispute turned on whether there had been loss of time during the transit period, after the arbitration panel raised this point at the hearing on its own initiative.

The five-year charter party in question was concluded while the vessel was under construction. The charter party permitted owners to drydock the vessel during the shipbuilding contract’s guarantee period a) for owners to establish whether they had a guarantee claim against the yard; and b) for the yard to perform guarantee work.

While the vessel was operating in Brazil during the first year after delivery (within the guarantee period), one of her four generators suffered a breakdown. The class inspected the vessel and issued a condition of class requiring replacement of the generator within a given time. It was unclear whether the replacement necessitated drydocking or could be done while the vessel was afloat. The operation in Brazil was completed without replacing the generator and with some time in hand until expiry of the deadline specified in the condition of class.

Charterers then secured new employment for the vessel in Equatorial Guinea. Under this new charter party, charterers’ customer had 12 one-day options at the end of the charter period. Charterers informed owners of this new employment, including the duration of the contract. Owners responded by saying that as soon as this next employment was finished, the vessel must proceed to a yard so that the generator could be replaced within the relevant time limit. When the employment in Equatorial Guinea was about to end, owners informed charterers that they had chosen a repair yard at Las Palmas. As the yard did not have drydock facilities suitable for the vessel, the work, including the replacement of the generator, would be done while the vessel was afloat.

Charterers’ customer exercised only one of its 12 one-day options. Thereafter the vessel left Equatorial Guinea for Las Palmas.

Although the parties had been engaged in a continuous discussion about the allocation of costs for the transit of the vessel to the repair yard from the time the generator broke down until the replacement was performed, they failed to agree who would pay for the transit time and cost (bunkers and lubes). This issue was therefore referred to arbitration.

Owners argued that clause 13 (c) of Supplytime 2005, which states that the vessel shall be on hire during between the place of drydocking and the area of operation shall be for charterers’ account, should apply despite the vessel not being drydocked. Their main argument was that the work performed on the vessel was equivalent to that performed during a regular drydocking. Owners also advanced two secondary arguments: 1) according to owners, the parties had agreed prior to the vessel’s stay at the yard that the transit should be for charterers’ account; and 2) owners argued that charterers had acted in bad faith by failing to make it clear before the transit commenced that charterers believed that clause 13 (c) was inapplicable, since the vessel was not to be drydocked.

On behalf of charterers, Nordisk argued that clause 13 (c) of Supplytime 2005 applied only if the vessel was actually drydocked. The wording was clear and referred only to transit to a yard where the vessel was to be drydocked. Charterers argued that the provision did not apply in cases where the vessel was repaired afloat.

Charterers also rejected both of owners’ secondary arguments. There was little evidence that any agreement had been reached as to who was going to pay for the time and costs of the transit before it took place, as each party had continuously maintained its position in the pre-transit discussions.

Charterers rejected the assertion that they had acted in bad faith by failing to make clear to owners their view that clause 13 (c) applied only where there was a drydocking According to charterers, the parties’ disagreement on the particular interpretation of clause 13 (c) in this respect had surfaced only after the vessel’s arrival at the repair yard.

The arbitrators agreed with all of Nordisk’s arguments to the effect that clause 13 (c) did not apply if there was no drydocking. The tribunal also supported charterers’ responses to owners’ secondary arguments, rejecting owners’ claim that the vessel was on hire during the transit pursuant to clause 13 (c).

During the hearing, however, the arbitrators asked whether the requirements for placing the vessel off-hire pursuant to the general off-hire provision in clause 13 (a) had been fulfilled .In particular the arbitrators questioned whether charterers had suffered a loss of time, which is one of the key requirements for placing the vessel off-hire pursuant to clause 13 (a). The background to this question was that charterers had potentially had an obligation to their customer to make the vessel available for 12 days after the end of the firm charter period (due to the 12 one-day options). The tribunal assumed that charterers could not have found alternative employment in this period (due to their potential commitments to their customer). For this reason, the tribunal decided that the charterers did not suffer a loss of time during the part of the transit that was performed during the 11 unused one-day options at the end of the charter in Equatorial Guinea. Regarding the part of the transit performed after this 11-day period, the tribunal held that charterers had suffered a loss of time resulting in the vessel being off-hire.

Furthermore, the tribunal argued that the transit had been performed in owners’ interest only. On this basis and despite the wording of the charter party, the tribunal decided that charterers should not pay for bunkers and lubes for the part of the transit performed while the vessel was on hire.

Nordisk was pleased to see that the tribunal applied the standard Norwegian law approach to the interpretation of commercial contracts by giving decisive weight to the wording of the charter party. However, we are of the view that the arbitration panel was not correct in deciding that there was no loss of time in a situation where owners actually took the vessel back from charterers and sailed her to a yard for repair, even though charterers had no other work for the vessel due to the decision by charterers’ customer not to exercise 11 of its 12 one-day options.

Nordisk is concerned that the arbitration panel saw fit to raise issues on its own initiative at a late stage in the hearing, after all the evidence had been presented. As a result the parties had no opportunity to submit evidence as to facts assumed by the tribunal on an issue that turned out to be decisive.