Web Alert: The "Ocean Virgo": High Court affirms the principles in respect of performance warranties in charterparties

Background

Speed and performance claims between owners and charterers are commonplace despite many technical advances in shipping. The club’s experience has shown that many of these disputes arise due to disagreements as to the meaning / interpretation of contractually agreed performance clauses and/or because of unintended consequences from the drafting of charterparties.

The club has a good level of experience in assisting members either in pursuing or defending such claims. A review of the general principles is explored in the club’s previous bulletin on speed and performance claims. The principles that are relevant to the current High Court decision[1] are worth bearing in mind relate to the judgments in the The Didymi[2] and Gas Enterprise[3], namely:

•  Since a ship’s performance is usually only warranted in ‘good weather’, a ship’s capability has to be calculated by reference to the average performance achieved during the various good weather periods enjoyed during the relevant voyage/s. 

•  In the event that a breach of performance warranty is established in good weather conditions, then consequential damages can be applied to the entire voyage/s in question, regardless of weather. The only exception is where there has been a request by the charterers to slow steam and no warranties have been given in respect of the ship’s slow-steaming performance. (Where the owners have given slow-steaming warranties, the usual principles apply.)

Facts

In December 2013, Polaris Shipping (charterers) chartered the ship “OCEAN VIRGO” from Sinoriches Enterprise (owners) for one time charter trip via the North Pacific to Singapore / Japan range. The ship was to carry coal in bulk. The ship performed firstly a ballast voyage from Chang Jiang, China to Roberts Bank, Canada and secondly a laden voyage from Roberts Bank, Canada to Donghae, South Korea.

The charterparty was on NYPE form and a speed and performance warranty was given on the basis of: “good weather/smooth sea up to max BF SC 4 / Douglas Sea State 3. No adverse currents, no negative influence of swell”.

Charterers made deductions from hire in respect of the ship’s under-performance, alleging that the ship could not meet its performance warranty in good weather during the course of the charter period, and the owners sought to recover this hire in arbitration proceedings.
The arbitrator held that for a good weather period to be admissible it had to run for 24 hours, from noon to noon, and that any speed and performance analysis involved a sampling exercise, and the sample size must be sufficiently large to be representative of the voyage in its entirety. The arbitrator dismissed the charterers’ claim, on the basis that there had been insufficient good weather periods during the course of the charter period and (more significantly) that the periods of good weather which did occur, being less than 24 hours, were not to be counted.

The Appeal

An appeal was made to the High Court under the Arbitration Act 1996 and on the basis that the arbitrator had erred in law. The basis of the arguments were that there were no grounds in law to exclude periods of good weather which did not last a full 24 hours and that the Tribunal had failed to give effect to the principles of The Didymi and Gas Enterprise.

The Court upheld charterers’ appeal on both counts.

In particular, the judge held that “The charterparty merely referred to “good weather. There are no words in the charterparty which justify construing good weather as referring to good weather days of 24 hours from noon to noon.”

The judge further held that “…once a breach is established by looking at performance in good weather the consequential damages claim is assessed by having regard to the whole of the charter period whatever the weather.”

The Award was remitted to the arbitrator for him to analyse again the periods of good weather and whether these amounted to a sufficient sample to establish a breach of the performance warranty. If they do, the under-performance was to be applied across the whole charter period (given, here, the contract was a time charter trip, with alleged underperformance for both legs of the journey).

Comment

Members should be aware of the findings of this case for two reasons: 

1. The decision makes it clear that it is not acceptable to imply a reference to ‘good weather days’ into clauses which do not expressly contain it. Therefore, periods of less than 24 hours cannot be excluded on that basis alone. Owner members should be conscious that often charterers and their appointed weather routing companies will instead look to assess periods of weather based on more limited good weather periods. In that case, care should be taken that performance clauses are carefully and deliberately drafted to ensure owners and charterers are both aware of the intended ambit of such a clause.
2. The decision affirms the principle that where a breach of the performance warranty is identified, based on a ‘good weather’ analysis, the shortfall in performance must then be applied to the entire voyage/s in question (subject to the usual exception where charterers request to slow steam).

If members have any comments or queries they are advised to contact the club, or their preferred legal advisers, for further advice.

This article intends to provide only general guidance on the above issues, arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. ​In case of any doubt, the member should not hesitate to contact the authors, or their usual club contact. The law is not static and if in any doubt The Standard Club is always on hand to assist.

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[1] Polaris Shipping Co Ltd V Sinoriches Enterprises Co Ltd [2015] EWHC 3405 (Comm)
[2] The Didymi [1988] 2 Lloyd's Rep. 108
[3] The Gas Enterprise [1993] 2 Lloyd's Rep. 352