Ship Speed and Bunker Consumption

Ship Speed

The standard ship description clause in most Time Charterparty forms contains the word about which qualifies the various figures and dimensions that are given.

In both the New York Produce Exchange Form (NYPE) and Baltime Time Charter Party clauses set out above, speed is shown as about … knots and consumption about … tons

What effect does this have under English Law? The use of the word about qualifies the absolute nature of the figures provided by the Shipowners in describing the characteristics of the ship and allows them a margin of error.

For example, the capacity and tonnage of a ship may be reduced slightly by work that is carried out in one of the holds or tanks but that information is not reflected in the last fixture that has been made; the Shipowners have the benefit of the qualification to cover this small divergence.

So the same applies to the speed and consumption figures. A ship is built and delivered capable of a certain speed on a certain consumption of fuel but use and age can marginally diminish these specifications. An engine may have to be cleaned at sea or revolutions and speed adjusted very slightly for one reason or another with the result that there is a minor divergence from the figure quoted in the Time Charterparty; again the owners have the benefit of the qualification of the figures.

A number of short passages may be undertaken which have an effect on the overall speed achieved during a particular period of time.

What is margin of error is allowed for Speed and Bunker Consumption?

There is no hard and fast rule that lays down the allowance given by the word about. Generally, it is accepted that an allowance of 0.5 knots is made in respect of a ship’s speed.

For instance, the ship is warranted to perform at about 15 knots, then there will be no breach of the warranty if the vessel is capable of performing at a speed of 14.5 knots.

Similarly, if the Shipowners are entitled to a bonus for over-performance the ship will have to attain over 15.5 knots for the Shipowners to recover. This is not a rule of law but a matter of fact.

The leading case on the Speed and Bunker Consumption is The AI Bida (1987) Court of Appeal decision. In The AI Bida (1987) case, the issue of the allowance for the use of the word about was raised.

One side argued that it must always mean half a knot or 5%; the other side responded that it was a matter of fact and that there was no fixed figure to be applied but each case must be looked at on its own facts. The court agreed with that the each case must be looked at on its own facts.

The phrase that is usually quoted from the judgment is that the allowance must be tailored to the ship’s configuration, size draught and trim etc. However, it is very unusual to find any allowance other than half a knot being given in London arbitrations so it is adopted as the customary figure in making performance calculations.

This can be said to cause some unfairness as a ship that manages only 10 knots has a 5% allowance while another vessel which can attain 20 knots is only given a 2.5% margin.

 

Ship Bunker (Fuel) Consumption

In Bunker (Fuel) Consumption, the same rule applies as Ship Speed. There is no set allowance for the use of the word about but a form of convention has grown up that a margin of 5% is usually allowed.

There are no reported cases on the subject but in one or two reported London arbitration awards from the 1980s there is some guidance to the effect that this margin is adopted in most cases by arbitrators.

It has been argued by charterers that, if a ship steams at an average speed of half a knot less than the description speed, then the bunker (fuel) consumption figure should also be reduced by the full margin of 5%.

This would mean that, if a ship consumed 40 tons of fuel per day a deduction of 2 tons per day would automatically be made, if she only performed at half a knot under the described speed. Therefore, if the ship steamed for 15 days at that speed the charterers would have a claim for 30 tons of over-consumed bunkers.

Generally, it appears that this argument has not found favor with London arbitrators. However if a Performance Clause was carefully worded the result could be achieved.

Ship Bunker (Fuel) Consumption Without Guarantee (WOG)

Apart from qualifying the figures in the description clause with the word about, owners are also stating more and more frequently that all figures are given Without Guarantee (WOG).

Indeed it is common to see at the beginning or end of the ship’s description clause in the charter the phrase All Details About and Without Guarantee (ADAWOG).

In fact, the use of Without Guarantee (WOG) is not new and there is an old reported Court of Appeal case dealing with its interpretation, Japy Frere v Sutherland (1921).

Japy Frere v Sutherland (1921) case concerned the description of a ship’s deadweight but has general application to all aspects of description including ship speed and bunker (fuel) consumption. The court found that the use of the words negatived any contractual promise with the result that the Shipowners would not be liable for any breach of the description. However, one of the judges indicated that the charterers might still be able to bring a successful claim for misrepresentation and terminate the charter on that basis.

The Lendoudis Evangelos II (1997) case concerning the estimated duration of a voyage, the court found that the use of the words also negatived any duty of care, effectively excluding any misrepresentation claim. It was said that the only obligation which existed in these circumstances was one of honesty.

In The Lipa (2001) case, the court reviewed the phrase again but this time directly in the context of a description of a ship speed and bunker (fuel) consumption. The court upheld the finding of the arbitrator which was that when the words Without Guarantee (WOG) were used in relation to speed and consumption figures in the description clause they negatived any contractual obligation. Although the judge did not comment directly on the question of honesty it seems that the same principles would be applied as in The Lendoudis Evangelos. If one of the contracting parties has only a claim for dishonesty, that is, fraud, to fall back on in such circumstances, then this may have consequences on the Arbitration Clause as the general position under English law is that only the courts may deal with Fraud Claims and Not Arbitrators.

Consequently, it is crucial for the Charterers and the Shipowners to be absolutely clear on what figures are or are not qualified in order to avoid the possibility of potentially complex questions of law arising.

Ship Speed Currents Effect

Ocean currents can have a considerable effect on some ship voyages. A ship may steam against a 2 to 3 knot current for a number of days with a resulting loss of performance. On the other hand, the ship may have the benefit of the same current if she performs the same passage on return.

There is little or no authority from the courts on the subject so London arbitrators will adopt differing views. There are examples of where they have ignored currents entirely when the only relevant provision has been that the ship’s performance is measured in good weather.

On other occasions ocean current factors may be accepted with the resultant increase or deduction in speed and consumption applied. Perhaps, as a rule of thumb, current factors are most likely to be applied when a specific voyage or short number of voyages are performed and where they are likely to have a material effect. However, if the ship performance is being reviewed over a long period or there are a number of varied passages the current factor will be taken as neutral and not applied.

Time Charter Vs Voyage Charter Comparison

Time Charters can vary in length from a few days to many years. A ship can undertake one voyage , often on what is called a Trip-Time Charter (TTC), or many of varying lengths and in differing conditions. How then, is performance to be measured in these widely divergent circumstances?

The short answer is to look at what the Charterparty says. In most time charters there will be a specific clause setting out how the calculations are to be performed.

In many standard tanker charters these provisions are in the printed form; in dry cargo charters they are very frequently an additional or special clause

An example of a clause from a Beepeetime form that was considered in The Gas Enterprise (1993) case. For the purpose of assessing the performance of the ship, the average speed and bunker consumption of the vessel shall be calculated upon the distance made, the time taken and the quantity of bunkers consumed by the vessel on each sea passage as ordered to be performed by the Charterers …. If during any passage reviewed … the average speed of the vessel is less than or exceeds the average speed based upon Charterers’ instructions to the Master from time to time during the passage then the resulting loss or saving in time … and in the case of loss of time the resulting time shall become payable by Owners to Charterers …. the case concerned the application of the good weather provisions but this is a good example of a clause which deals with performance on a voyage basis.

In Didymi Corporation v Atlantic Lines & Navigation (1987) case, the court was again considering the effect of good weather provisions but this time in relation to a time-based assessment, the relevant part of the Ship Performance Clause reading:

“the speed and consumption, as guaranteed by the Owners … will be reviewed by Charterers at the end of the duration of this Charter Party, and if it is found that the vessel has failed to maintain as an average during the period of the Charter Party the speed and/or consumption stipulated above, the Charterers shall be indemnified by reduction of hire ….”

The calculation required all periods of performance to be taken into account to produce the average and then for that to be applied across the whole period of the charter.

In The AI Bida (1986) 1 Lloyd’s Rep 142 and (1987) case, which went to the Court of Appeal, there was a distinction made between the calculation of the Ship Speed and that of the Bunker (Fuel) Consumption. While the initial description gave straightforward speed and consumption figures an additional clause provided that the speed was: “guaranteed sea speed on a year period abt. 15.5 knots” There was not an equivalent provision in relation to consumption.

The court found that whilst the speed was to be computed as an average over yearly periods the consumption figures were to be taken on a voyage by voyage basis.

The result was that, whilst the Shipowners had the benefit of periods when the ship performed at higher speeds because of the averaging, only the voyages where there was over-consumption were counted in assessing the charterers’ claims because it was only on these passages that the owners were in breach of their obligations.

For Shipowners it is usually helpful to have a period calculation of performance, particularly in longer charter periods, as this will even out problems such as voyages performed prior to hull painting and minor difficulties with engine performance.

For Charterers a voyage by voyage basis can be more favorable although the relevant clause must be carefully worded to ensure that owners do not have the benefit of setting off any better performance on individual voyages.

Ship Performance and Deductions from Ship Hire

At the end of a charter party calculations of performance have been carried out and the result is that whilst the ship has not been capable of reaching her Warranted Speed ship has also under-consumed Bunkers (Fuels).

The charterers therefore have a claim for overpaid hire whilst the owners are entitled to a bonus for bunker saving.

How will these be recovered?

If the calculations are made and agreed before redelivery of the ship agreement may be reached on a reduction of hire for the charterers to compensate for the speed claim and a deduction from the bunker values to compensate owners. But what if agreement cannot be reached?

One of the simplest ways for Charterers to obtain recovery would be to set off their claim against hire due to the Shipowners but are they entitled to do this? The present position is far from clear.

In The Nanfri (1978) case, various judges had indicated that it might be permissible for deductions to be made from hire if the charterers had effectively been deprived of their use of the vessel. In that case the Court of Appeal confirmed that this was correct and that ship owners were not entitled to withdraw the vessel for failure to pay hire in those circumstances.

The difficulty that has arisen since in the context of performance claims is whether they are of a nature that they can be classified as depriving charterers of the use of the vessel.

In The Chrysovalandou Oyo (1981) case,  a judgment was given which did allow a deduction from hire for a claim that there had been a breach of the speed warranty. The reasoning is that if the ship performed at the warranted speed the charterers would have additional time at their disposal, but that this time was lost.

This has been followed in subsequent cases but the position still awaits clarification by the Court of Appeal or House of Lords. The charterers might therefore open themselves up to a slight risk of being accused of wrongfully deducting hire but this is unlikely, particularly if the counter-claim for the hire was secured.

Deducting for over-consumption is more risky as this is not a claim for loss of use of the vessel but damages for uncontractual deprivation.

The best advice that might be given to charterers is to await the final installment of hire before making any deduction. It is also important to note that any claim must be made in good faith and on the basis of a reasonable assessment.

An arbitrary hire deduction without good evidence might well be considered wrongful and allow the owners to withdraw the ship under the charter.

But what if the lack of performance is having a real and adverse effect on the charterers’ business? Are the Charterers entitled to withdraw from the charter?

This is obviously the most drastic self-help remedy and must be an action of last resort. As set out at the beginning of this section, performance obligations have been classified as intermediate terms giving rise to the right to terminate where the breach goes to the very substance of the agreement. The circumstances where damages alone will not be sufficient to compensate the charterers will be very rare but they do exist; the best example was in The Aegean Dolphin (1992) case.

In he Aegean Dolphin (1992) case, the charterers were running a cruise-ship service but on a relatively tight schedule between a number of ports. This was known to the owners when they entered the charter and they warranted that the vessel was capable of 18 knots in good weather conditions. In fact, the ship could not perform at this speed which meant that she would fall behind the agreed schedules with devastating consequences to the charterers’ business. The court found that, in these circumstances, the charterers were entitled to reject the ship. Unfortunately for the charterers they had signed a document saying that the ship was satisfactory as a result of which they were found to have waived their right to cancel.