The charter cannot be terminated on the basis of the vessel’s drift en route to the port of destination

Is the use of the vessel suspended on charter during the drift period?

On October 3, 2013, the Court of Appeal in England and Wales ruled in the case of Minerva Navigation Inc. v. Oceana Shipping AG (The Athena).

Minerva Navigation Inc., the owner of the vessel Athena, has entered into a chartering agreement with Oceana Shipping AG, which in turn has entered into a sub-chartering agreement with Transatlantica Commodities SA. Both chartering agreements were drawn up in accordance with the pro forma time charter NYPE (New York Produce Exchange) 1946 (as amended in 1993). Paragraph 15 of the pro forma regarding the conditions for terminating the lease of a vessel provides: "... in case of loss of time ... due to non-fulfillment of their obligations by the captain ... or for any other reason that impedes the full operation of the vessel, rental payments are suspended for the corresponding time lost ... and all additional expenses incurred, including consumed bunker fuel, during the lease suspension period, are borne by the shipowner...".

The ship was supposed to transport wheat from Novorossiysk to Syria. However, when it arrived at one of the ports of destination indicated in the bill of lading (Tartus), the cargo was not accepted for unloading due to its pollution. On January 16, 2010, the vessel left the waters of Syria and received instructions from shipowners to remain in international waters near Libya and to expect further instructions. The instructions of charterers to anchor in Benghazi were not executed by the captain. In response, the charterers stated that they would consider the ship as unused under the freight contract until it anchored in Benghazi. The vessel continued to drift in international waters for another 10 days, after which the cargo was unloaded at the port of Benghazi.

The charterers have filed a claim against shipowners for the legitimacy of rental payments during the time of the vessel’s drift. The grounds for claims were:

(1) lack of rental legal relations due to the impossibility of disposal of the vessel by charterers during the drift period;

(2) termination of the contract of freight and payment of lease payments during this period;

The Court of Appeal ruled that the rent could not be terminated during the drift of the vessel, which is en route. In support of its decision, the court indicated the following: the meaning of the aforementioned paragraph 15 of the NYPE pro forma is to prevent a full stop in the operation of the vessel, which refers to the ability to perform the tasks assigned to the vessel. The task of the ship Athena during the drift in international waters was to continue the journey to the city of Benghazi. There is no need to calculate the lost time due to the captain’s failure to fulfill obligations, since approximately the same amount of time could have been lost if the ship’s immediate task was not maritime transfer, but immediately docking and unloading the cargo.

(3) damages on the basis of the vessel’s master’s default on the agreed flight.

Regarding damages in their conclusion, the arbitrators unanimously decided that breach of the contract by the shipowners did not cause any damage to the charterers, since even if the ship went directly to the port of Benghazi, it would be able to moor not earlier than the time when it actually happened.

Thus, clause 15 has nothing to do with the chartering of the vessel itself and the flights it performs, when for some other reason the charter service has been delayed. Paragraph 15 applies only to the net loss of time when the operation of the vessel was completely discontinued. Such an interpretation of Clause 15 allows the parties to avoid difficulties and also provides shipowners with legal remedies in case of late payment of rent.

In case of consideration of such a dispute between the shipowner and the charterer under Russian law, the arbitration court would probably have sided with the defendant (the charterer), since under the Charter agreement according to article 206 of the KTM of the Russian Federation "for the captain of the vessel and other crew members the charterer's orders concerning the commercial operation of the vessel are obligatory". Consequently, following the shipowner's instructions, the captain violated his obligation, and the terms of the charter contract were not met. In accordance with paragraph 2 of Art. 328 of the Civil Code of the Russian Federation: "in the event that the obliged party fails to provide for the performance of an obligation stipulated by the contract or there are circumstances that obviously indicate that such execution will not take place within the prescribed period, the party on whom the counter execution lies has the right to suspend the fulfillment of its obligation or refuse to perform of this obligation and claim damages". Thus, the charterer has the right to refuse to pay the freight charges for the time of the vessel’s drift in international waters and the captain’s disobeying his instructions on the commercial operation of the vessel (entering the port of Benghazi and unloading the cargo). 

Kirill Maslov

Managing Partner

Law office of St. Petersburg «Inmarine».

(based on materials from BIMCO magazine)