Charterers’ Legal Obligations when supplying Fuel to Ship

In most time charters, the only relevant express words used in the charter apart from the technical specification of the fuel are such as those found in Clause 2 of the NYPE (New York Produce Exchage) form: ‘… the charterers shall provide and pay for all the fuel …’ (usually prefixed by the added words ‘Whilst on hire … ’). It was held by a sole arbitrator seven years ago in an unpublished award that charterers were under an implied absolute duty to supply fuel which was ‘fit for the purpose’ and suitable for the particular vessel in question. The arbitrator’s reasons for this conclusion were very brief and it is not apparent that the point was debated in any detail. In another award on the same point several years previously, a highly eminent legal arbitrator rejected the above argument, which in effect is that a time charterer owes the same absolute duty that is imposed on a seller of goods by Section 14 of the Sale of Goods Act 1979 to supply goods which are of “satisfactory quality” and “fit for purpose”. Another tribunal of three arbitrators also rejected this argument in 2007. There are two types of situation where the nature of the obligation owed by charterers when providing fuel for the ship is likely to be critical. First, where the bunkers supplied are in conformity with the specification in the charter party (which often simply stipulates a particular viscosity), but contain some contaminant unknown to the charterer. Second, where despite conforming to the agreed technical specification the bunkers are not suitable or satisfactory for the particular vessel’s engine. The arbitrator in the arbitration referred to above considered that owners’ argument that charterers are impliedly obliged to guarantee that the bunkers they supply will be reasonably fit for the ship’s engines failed for several reasons: – owners’ argument relies upon an implied term which has to be injected into the contract by operation of law and/or in order to give business efficacy to the contract. A term so widely formulated disregards the possibility that the machinery of a vessel could have special characteristics, of which charterers had neither knowledge nor the means of knowledge, that rendered it susceptible to damage by fuel that would be perfectly acceptable for use in most other similar engines. – The justification for importing an obligation from the quite different context of the Sale of Goods Act is not obvious. The Act implies such a term only in contracts for the sale of goods. No court has ever remotely suggested that a time charter is to be treated as if it were such a contract. – If the fuel provided is within the charter specification, a term that it should also possess some other additional qualities over and above the specification expressly agreed by the parties will not be implied by English law for two reasons. First, a term which makes charterers liable for damages, notwithstanding their strict compliance with the contract specification, is inconsistent with the express terms of the contract. Second, it cannot be said that the implication of the strict Sale of Goods Act obligations is necessary to make a time charter ‘work’ (or give it ‘business efficacy’). The law will generally imply a duty on charterers to exercise reasonable care in and about the discharge of their procurement obligations under a charter and the charter ‘works’ perfectly well with this less burdensome duty. What, then, is the obligation assumed by charterers when agreeing to ‘provide and pay for’ bunkers? If the reasoning accepted in the second arbitration is correct, it is to act reasonably (or ‘exercise due diligence’). In other words, to appoint reputable bunker suppliers and inform them of the detailed specifications set out in the charter party. If owners wish charterers to guarantee that the bunkers will also be suitable for the vessel’s engines, they should ensure that the charter party states this.