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IN THIS ISSUE:
Off-Hire Clause: Balancing Two Competing Interests
12
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Written by Max Korndoerfer and Valentins Abasins
Off Hire Clauses
Specific Features of Off Hire Clauses
Contact Details
harterparty disputes can be daunting for both, the shipowner and
the charterer. As much as both parties would want to settle a
dispute amicably there is always a lesson to be learned for either
party.
The off-hire clause operates independently of fault or breach on
the part of the shipowner. Once the respective event occurs the
vessel should be put off-hire, and the charterer should be relieved
from his obligation to pay hire as long as he cannot use a given
vessel. This article endeavours to explain one of the main areas of
concern or to say areas of dispute - off-hire clauses.
There are two types of off-hire clauses which are used in time
charters, net loss of time clauses and period clauses.
New York Produce Exchange Form 1946 (NYPE 1946) and Baltime
forms contain net loss of time off-hire clauses. This means that
charterer may deduct from the payable hire only if, following the
occurrence of a qualifying off-hire event, the charterer has
actually suffered a loss of time in view of the whole duration of
the time charter 1 . Even if the event falls within the wording of
an off-hire clause, there is normally no off-hire unless time has
been lost.
That means that the charterer is only able to declare the vessel
to be off-hire when the vessels service is immediately delayed or
interrupted, e.g., if the vessel is able to continue to load
despite an engine breakdown there is no loss of time.
For example, Clause 21 (a) of Shelltime 4 form provides: on each
and every occasion that there is loss of time... due to...
Types of Off-Hire Clauses
No. 2013/08
3 Conclusions
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1.2SpecificChangestoStructure
1.2.1.RearrangementofClausesRelatingtoRisksCoveredundertheP&ICover:The
Clauses relating to the risks covered under the P&I Cover have
been collectively put together between Rules 11 30 (both
inclusive).
Rule 14 (Liability in Respect of Death or Injury of Third
Parties) mergespreviousClause14(ShipOwners-Liabilitytowards
otherPersons)andClause15(CharterersLiabilityLiabilityto
persons other than employees).
Rule15(OwnersP&ICoverLiabilityinRespectofSupernu-meraries)
newly added.
Rule28(SueandLabourandLegalCosts)previouslyClause
37.
Rule 29 (Contracts of Indemnity or Guarantee) newly added.
Rule 30 (Special Compensation for Salvors) previously Clause
46.
1.2.2.Merged/SplitClauses(OtherthanthoseRelatingtoRisksCoveredunderSection1.2.1)
Rule8.7containsthecontentsofpreviousClause41(Exclusion
of Set-Off).
Rule32.16containsthecontentsofpreviousClause30(Negli-gence of
the Assured), which as a result has been deleted.
Rule 33 (Obligations prior to Occurrence of the Event Insured
Against) merges previous Clause 31 (Ship Owners Obligations prior
to Occurrence of the Event insured against) and Clause 32
Charterers Liability - Obligations prior to Occurrence of the Event
insured against).
Rule38.1containsthecontentsofpreviousClause39(Limitation
of Reimbursement) which as a result has been deleted.
Rule38.2containsthecontentsofpreviousClause40(Deduct-ibles)
which as a result has been deleted.
1.2.3.NewlyAddedClauses(OtherthanthoseRelatingtoRisksCoveredunderSection1.2.1)
Rule38(Reimbursement)
Rule 42 (Club Not Liable for Interest)
Rule43(Indemnification)
Rule 49 (Notices) Rule 50 (Forbearance)
1.2.4.RenumberingofClauses(OtherthanthoseRelatingtoRisksCoveredunderSection1.2.1)
The above rearrangement/additions/mergers of Clauses have,
obvi-ously, caused renumbering of previous clauses which are set
out below:
Rule31(Warranties)previouslyClause28.
Rule 32 (Exclusions) previously Clause 29. Rule 34 (Duties and
Obligations after Occurrence of the Event
Insured Against) previously Clause 33. Rule 35 (Prohibition to
Acknowledge Third Party Liability Claims)
previously Clause 34.
Rule36(BailsandSecurities)previouslyClause35.
Rule37(ClaimsHandlingProvisions)previouslyClause36.
Rule39(PaytobePaid)previouslyClause48.
Rule40(Subrogation)previouslyClause38.
Rule 41 (Rejection to Reimburse) previously Clause 44. Rule 44
(Limitation Period) previously Clause 43. Rule 45 (Omnibus Rule)
previously Clause 47.
Rule46(ApplicableLaw,ArbitrationAgreementandJurisdiction)
previously Clause 45. Rule 47 (Exclusion of Assignment)
previously Clause 42.
Rule48(Renewals/AdExtremisRatioExitus)previouslyClause
49.
2. Changes to Substance
2.1MainAmendments
Wording of various Clauses has been amended in order to make
them more detailed and clear. Most substantial amendments are set
out below:
Rule1(SubjectofP&ICover)has been elaborated to set out
general requirements for the P&I Cover to be in place, such as:
Assureds interest intheEnteredShip;coveredcostsbeing
incurred in connection to the operation of the Entered Ship;
such costs having been incurred during the Policy Year, etc.
Rule8(PaymentofPremiumandOtherSumsDue) is an
amendedversionofpreviousClause8(PremiumPayment)
and it deals with such additional issues as: offset of claims
due againstnextpremiuminstalment,ClubslienontheEntered
Ship for premiums and other sums due, refund of premium,
etc.
Rule9(PeriodofP&ICoverandTerminationofP&ICover) has been
redrafted based on previous Clause 9 (Period of Insur-ance). The
Rule has been made more comprehensive, clearly stating the events
that lead to termination of P&I Cover
auto-matically(eventsinrelationtotheAssured,suchas,Assureds
voluntary dissolution, and events in relation to the Entered
Ship, such as its constructive total loss) and those, in which the
P&I CoveristerminatedwiththeManagerspriornotice.Thelatter
group of events include, inter alia, non-payment by the Assured
ofpremiumsorothersumsdueandnon-fulfilmentofotherAs-suredsobligationsundertheP&ICover.
Rule11(CargoLiabilities)elaboratescertainspecificsituationsin
which cargo liabilities are covered such as collision, damage
tofixedandfloatingobjects,washdamageetc.Further,spe-cificcargoexclusionsinlinewithstandardP&Iinsurancecovers
have been incorporated such as cargo liabilities shall not be
covered for paperless trading, deck cargo, refrigerated cargo etc
on terms set out therein.
Rule17(Stowaways,RefugeesandDesertedSeamen)has
mergedwhatwaspreviouslysetoutundertwospecificheadings
i.e. Ship Owners Insurance and Charterers Liability Insurance,
as aspects applicable to Charterers are also applicable to Owners.
However, attributes relevant only for Owners and as-sociated
exclusions are set out separately, basically aiming to make the
Rule easily comprehensible by the Assureds.
Clause20(WreckLiabilities)remains largely the same in terms of
aspects covered. However, it is expressly stated that there shall
be no recovery in respect of any liability incurred more than two
years after the Entered Ship, Cargo, equipment or other property
became a wreck, or was lost unless the Man-agers in their
discretion decide otherwise.
Rule21(LiabilityunderTowageContracts)has been
elabo-rateduponspecificallyprovidinginteraliathatinorderforsuch
liabilities to be covered the Managers should be aware that the
Entered Ship carries out towage operations and approve the towage
contract.
Rule25(PollutionLiabilities) has been amended to suit the
commercial requirements of the Assured; three types of risks are
covered under this Rule i.e. Bunker Pollution associated with the
Bunker Blue Card, Pollution from Tankers associated with the Tanker
Blue Card and Pollution from Contaminating Substances. The Assured
may be covered for all the above three risks or any
oneormoreofthemasexpresslystatedintheCertificateof
Entry.FurthertheRuleislinkedtoRule43(Indemnification),
more elaborated under Section 2.2 Rules Added.
Rule26(PenaltiesandFines)has been extended to cover
penaltiesandfinesinrelationtobreachofimmigrationlawsor
regulations yet expressly restricts cover in certain instances
such asincorrectdeclarationoftheEnteredShipsprovisions,illegal
fishing,infringementofsafenavigationregulationsetc.
Rule31(Warranties) has been categorised into three sets:
Pre-Entry and Annual Condition Survey Warranties, Trading
Warran-tiesandthoseWarrantiessetoutintheCertificateofEntry.
Rule32(Exclusions)in line with standard P&I insurance
covers, certain specialist risks have been excluded such as those
liabil-ities, costs and expenses associated with operating salvage
tugs, semi-submersible heavy lift ships, drilling and exploration
of oil/gas, diving etc. Further the Rule expressly provides that
recov-ery from the Club is subject to the Assured having existing
cover withtheClubforthosespecificrisksintermsofwhichtheAssured
seeks reimbursement.
Rule44(LimitationPeriod)hasbeensimplifiedfortheconve-nience of
the Assured and provides:
Notice of claims must be given immediately to the Managers but
no later than 12 months of occurrence of the particular incident
leading to the claim.
Notice of legal/arbitration proceedings must be given to the
Managers as soon as possible but in no case later than 30 days
Examples of Net Loss of Time Clauses
Example of Period Clause
Comparison of Net Loss of Time and Period Clauses
SAILING01.01.12
SAILING01.01.12
DISCHARGE11.01.12
DISCHARGE16.01.12
TOW08.01.12
10 DAYS
7 DAYS 8 DAYS
Planned Voyage
Actual Voyage
A C
Specific Features of Off-Hire Clauses
Importance and the effect of Wording in General
In contrast, a period off-hire clause provides that the
charterer can treat the whole of the period during which the
qualifying event is in existence as off-hire irrespective of
whether a loss of time has actually been suffered. Such clauses
provide an element of certainty in that the existence of the
qualifying event is a question of fact which, on the whole, is easy
to define. Net loss of time clauses present difficulties because
they require proof of loss of time. If a crane breakdown occurs,
one can only make a reasonable calculation as to how long it would
have taken to complete the cargo operations had the crane not
broken down.
Should the vessel be capturedthe payment of hire shall be
suspended until the time of her release.2
Vessel has a breakdown and is towed to discharge port.
Net loss of time = actual time from A-C (15 days) less time it
would have taken if there had been no breakdown (10 days), i.e. 5
days.
Period off-hire = Actual time taken to perform tow from B-C,
i.e. 8 days.
Clause 15 of NYPE 1946 provides: That in the event of the loss
of time from deficiency of men or stores, fire, breakdown or
damages to hull, machinery or equipment, grounding, detention by
average accidents to ship or cargo, dry-docking for the purpose of
examination or painting bottom, or by any other cause preventing
the full working of the vessel, the payment of hire shall cease for
the time thereby lost; []
Various specific issues also need to be addressed in order to
analyse the role of the off-hire clause in the contractual
relationship between the shipowner and the charterer.
Wording of off-hire clauses of different charterparties vary
substantially. Each clause must be looked at closely to ensure that
the particular circumstances fall within the particular clause. A
minor addition to; or deletion from, the printed words can have a
dramatic effect on the applicability of the clause.
Thus the off-hire events of the above cited off-hire clause are
as follows:
A) Specific Events
B) General Event
A B C
the payment of hire shall cease for the time thereby lost (NYPE
1946 Line 99)
no hire to be paid in respect of any time lost thereby (Baltime
Line 84)
Capture, Seizure Arrest
Deficiency of men or stores
Any other cause, however, such event must prevent the full
working of the vessel.
These words must be of the same kind with the preceding words of
the clause. Only those causes which are similar in type to the
specific and express causes itemised in the clause will qualify as
any other cause. However, the addition of the word whatsoever to
any other cause, removes the necessity to read the latter words
ejusdem generis with the specific causes itemised in the
clause.
Fire
Breakdown or damage to hull, machinery or equipment
Detention by average accidents to vessel or cargo
Drydocking for the purposes of examination or painting
bottom
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1.2SpecificChangestoStructure
1.2.1.RearrangementofClausesRelatingtoRisksCoveredundertheP&ICover:The
Clauses relating to the risks covered under the P&I Cover have
been collectively put together between Rules 11 30 (both
inclusive).
Rule 14 (Liability in Respect of Death or Injury of Third
Parties) mergespreviousClause14(ShipOwners-Liabilitytowards
otherPersons)andClause15(CharterersLiabilityLiabilityto
persons other than employees).
Rule15(OwnersP&ICoverLiabilityinRespectofSupernu-meraries)
newly added.
Rule28(SueandLabourandLegalCosts)previouslyClause
37.
Rule 29 (Contracts of Indemnity or Guarantee) newly added.
Rule 30 (Special Compensation for Salvors) previously Clause
46.
1.2.2.Merged/SplitClauses(OtherthanthoseRelatingtoRisksCoveredunderSection1.2.1)
Rule8.7containsthecontentsofpreviousClause41(Exclusion
of Set-Off).
Rule32.16containsthecontentsofpreviousClause30(Negli-gence of
the Assured), which as a result has been deleted.
Rule 33 (Obligations prior to Occurrence of the Event Insured
Against) merges previous Clause 31 (Ship Owners Obligations prior
to Occurrence of the Event insured against) and Clause 32
Charterers Liability - Obligations prior to Occurrence of the Event
insured against).
Rule38.1containsthecontentsofpreviousClause39(Limitation
of Reimbursement) which as a result has been deleted.
Rule38.2containsthecontentsofpreviousClause40(Deduct-ibles)
which as a result has been deleted.
1.2.3.NewlyAddedClauses(OtherthanthoseRelatingtoRisksCoveredunderSection1.2.1)
Rule38(Reimbursement)
Rule 42 (Club Not Liable for Interest)
Rule43(Indemnification)
Rule 49 (Notices) Rule 50 (Forbearance)
1.2.4.RenumberingofClauses(OtherthanthoseRelatingtoRisksCoveredunderSection1.2.1)
The above rearrangement/additions/mergers of Clauses have,
obvi-ously, caused renumbering of previous clauses which are set
out below:
Rule31(Warranties)previouslyClause28.
Rule 32 (Exclusions) previously Clause 29. Rule 34 (Duties and
Obligations after Occurrence of the Event
Insured Against) previously Clause 33. Rule 35 (Prohibition to
Acknowledge Third Party Liability Claims)
previously Clause 34.
Rule36(BailsandSecurities)previouslyClause35.
Rule37(ClaimsHandlingProvisions)previouslyClause36.
Rule39(PaytobePaid)previouslyClause48.
Rule40(Subrogation)previouslyClause38.
Rule 41 (Rejection to Reimburse) previously Clause 44. Rule 44
(Limitation Period) previously Clause 43. Rule 45 (Omnibus Rule)
previously Clause 47.
Rule46(ApplicableLaw,ArbitrationAgreementandJurisdiction)
previously Clause 45. Rule 47 (Exclusion of Assignment)
previously Clause 42.
Rule48(Renewals/AdExtremisRatioExitus)previouslyClause
49.
2. Changes to Substance
2.1MainAmendments
Wording of various Clauses has been amended in order to make
them more detailed and clear. Most substantial amendments are set
out below:
Rule1(SubjectofP&ICover)has been elaborated to set out
general requirements for the P&I Cover to be in place, such as:
Assureds interest intheEnteredShip;coveredcostsbeing
incurred in connection to the operation of the Entered Ship;
such costs having been incurred during the Policy Year, etc.
Rule8(PaymentofPremiumandOtherSumsDue) is an
amendedversionofpreviousClause8(PremiumPayment)
and it deals with such additional issues as: offset of claims
due againstnextpremiuminstalment,ClubslienontheEntered
Ship for premiums and other sums due, refund of premium,
etc.
Rule9(PeriodofP&ICoverandTerminationofP&ICover) has been
redrafted based on previous Clause 9 (Period of Insur-ance). The
Rule has been made more comprehensive, clearly stating the events
that lead to termination of P&I Cover
auto-matically(eventsinrelationtotheAssured,suchas,Assureds
voluntary dissolution, and events in relation to the Entered
Ship, such as its constructive total loss) and those, in which the
P&I CoveristerminatedwiththeManagerspriornotice.Thelatter
group of events include, inter alia, non-payment by the Assured
ofpremiumsorothersumsdueandnon-fulfilmentofotherAs-suredsobligationsundertheP&ICover.
Rule11(CargoLiabilities)elaboratescertainspecificsituationsin
which cargo liabilities are covered such as collision, damage
tofixedandfloatingobjects,washdamageetc.Further,spe-cificcargoexclusionsinlinewithstandardP&Iinsurancecovers
have been incorporated such as cargo liabilities shall not be
covered for paperless trading, deck cargo, refrigerated cargo etc
on terms set out therein.
Rule17(Stowaways,RefugeesandDesertedSeamen)has
mergedwhatwaspreviouslysetoutundertwospecificheadings
i.e. Ship Owners Insurance and Charterers Liability Insurance,
as aspects applicable to Charterers are also applicable to Owners.
However, attributes relevant only for Owners and as-sociated
exclusions are set out separately, basically aiming to make the
Rule easily comprehensible by the Assureds.
Clause20(WreckLiabilities)remains largely the same in terms of
aspects covered. However, it is expressly stated that there shall
be no recovery in respect of any liability incurred more than two
years after the Entered Ship, Cargo, equipment or other property
became a wreck, or was lost unless the Man-agers in their
discretion decide otherwise.
Rule21(LiabilityunderTowageContracts)has been
elabo-rateduponspecificallyprovidinginteraliathatinorderforsuch
liabilities to be covered the Managers should be aware that the
Entered Ship carries out towage operations and approve the towage
contract.
Rule25(PollutionLiabilities) has been amended to suit the
commercial requirements of the Assured; three types of risks are
covered under this Rule i.e. Bunker Pollution associated with the
Bunker Blue Card, Pollution from Tankers associated with the Tanker
Blue Card and Pollution from Contaminating Substances. The Assured
may be covered for all the above three risks or any
oneormoreofthemasexpresslystatedintheCertificateof
Entry.FurthertheRuleislinkedtoRule43(Indemnification),
more elaborated under Section 2.2 Rules Added.
Rule26(PenaltiesandFines)has been extended to cover
penaltiesandfinesinrelationtobreachofimmigrationlawsor
regulations yet expressly restricts cover in certain instances
such asincorrectdeclarationoftheEnteredShipsprovisions,illegal
fishing,infringementofsafenavigationregulationsetc.
Rule31(Warranties) has been categorised into three sets:
Pre-Entry and Annual Condition Survey Warranties, Trading
Warran-tiesandthoseWarrantiessetoutintheCertificateofEntry.
Rule32(Exclusions)in line with standard P&I insurance
covers, certain specialist risks have been excluded such as those
liabil-ities, costs and expenses associated with operating salvage
tugs, semi-submersible heavy lift ships, drilling and exploration
of oil/gas, diving etc. Further the Rule expressly provides that
recov-ery from the Club is subject to the Assured having existing
cover withtheClubforthosespecificrisksintermsofwhichtheAssured
seeks reimbursement.
Rule44(LimitationPeriod)hasbeensimplifiedfortheconve-nience of
the Assured and provides:
Notice of claims must be given immediately to the Managers but
no later than 12 months of occurrence of the particular incident
leading to the claim.
Notice of legal/arbitration proceedings must be given to the
Managers as soon as possible but in no case later than 30 days
Incidents Caused by Charterers Employment Orders
Conclusions
Charterer cannot place a vessel off-hire if the incident is not
a fortuity but the direct result of its own employment
instructions. If the charterer orders the vessel to load coal on
one voyage and sugar in bulk on the next, he can hardly expect the
cleaning to be done in ship owners (i.e. off-hire) time.
As it can be seen from recent case law it could be argued that
there are two main difficulties when construing off-hire
clauses.4/5 That is to say, the outcome of a particular case
largely depends on whether a given standard off-hire clause is
amended and includes the word whatsoever, and whether a particular
event will be qualified and accepted by parties (or ultimately by
court) as falling within the natural meaning of a given off-hire
clause. It is, of course, for the charterer to prove that the
particular event falls within the off-hire clause, since it is
drafted for the charterers benefit only. Hopefully a better
understanding of the clause and its use can assist our assured in
taking the right decisions.
Given that off-hire clauses within charterparties are often the
reason of disagreements between owners and charterers, DGS Marine
Group will be pleased to assist its clients in negotiating or
drafting a particular off-hire clause, or assist if there is a
dispute between a charterer and a shipowner. Lastly, freight,
demurrage and defence (FD&D) cover offered by the BE&O
FD&D Facility, in its turn, will cover the assureds expenses
for legal assistance and court fees if incurred as a result of the
dispute.
A) A vessel is captured by pirates and the crew is forced to
sail her to Somalia where she is detained for 2 months.
B) The charterer refuses to pay hire for this period.
C) The charterparty off-hire clause reads as follows: That in
the event of the loss of time from default and/or deficiency of men
including strike of officers and/or crew or deficiency of stores,
fire, breakdown or damages to hull, machinery or equipment,
grounding, detention by average accidents to ship or cargo,
dry-docking for the purpose of examination or painting bottom, or
by any other cause preventing the full working of the vessel, the
payment of hire shall cease for the time thereby lost.
D) Held by the court:
a) There was no average accident to vessel or cargo b) There was
no default of men c) There was no deficiency of men d) There was no
other cause which was ejusdem generis the preceding causes since
the piracy attack was a wholly external event. 3
Should you have any queries or require any further information
on the above, please contact:
Example:
The full working of the vessel was prevented
However, for the vessel to be off-hire the full working must be
prevented by a cause within the off-hire clause
There was no relevant cause within the off-hire clause
since:
Note: If the word whatsoever had been added the vessel would
have been off-hire!
1 Minerva Navigation Inc v Oceana Shipping AG (M/V Athena)
[2012] EWHC
3608 (Comm). 2Hyundai Merchant Marine Co Ltd v Furness Withy
(Australia) PTY Doric
Pride [2005] 2 Lloyds Rep. 470. 3Cosco Bulk Carrier Co Ltd v
Team-Up Owning Co Ltd (The Saldanha),
[2011] 1 Lloyds Rep. 187. 4Andre & CIE S.A. v Orient
Shipping (Rotterdam) B.V. (The Laconian
Confidence), [1997] 1 Lloyds Rep. 139. 5Osmium Shipping v
Cargill International SA (The Captain Stefanos),
[2012] 2 Lloyds Rep. 46.
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