What is Off-Hire in Ship Chartering?
Ship hire is payable throughout the charter period irrespective of whether the charterer has any use for the ship. Usually, provision is stipulated in an off-hire clause that no hire shall be payable during periods when the full use of the ship is not available to the charterer because of some break-down, accident or deficiency which falls within the shipowner’s area of responsibility.
Ship off-hire clause stipulates the incidences on which the ship will go off-hire and is normally initiated by the insignificant occurrence of the event, regardless of any fault on the part of the shipowner. With off-hire clause, charterer will be entitled to an adjustment of the hire to remunerate for the time lost.
Generally, off-hire clauses include express provision intended to enable the charterer to deduct the suitable amount from the next installment of hire. Even in the absence of such an express clause, the courts are apparently prepared to imply a right to deduct, provided that such deductions are made in good faith and on reasonable grounds.
Ship Off-Hire Period
In order to be considered as ship off-hire period, charterer must be deprived of the use of the ship. Charterer will be unable to rely on the off-hire clause unless charterer is deprived of the use of the ship by the occurrence of one of the specified events.
Engine breakdown at sea might take the ship off-hire. On the other hand, engine breakdown would not have taken the ship off-hire if it occurred while the ship was discharging in port, provided that the ship was otherwise efficient for carrying out that operation. In a similar manner, installation of new equipment by shipowner at the charterer’s request while the ship was waiting for a berth, did not activate the off-hire clause since the charterer was not, in the circumstances, deprived of the use of the ship.
Ship off-hire period depends, on the precise wording of the clause and the strict standards of interpretation adopted by the courts have resulted in superficially similarly drafted clauses producing radically different effects. Majority of standard off-hire clauses fall into one of two distinct categories:
- Period Clauses
- Net Loss of Time Clauses
Period Clause is distinguished by the fact that it designates the start and end of any period for which hire is suspended by linking them to the occurrence of specified events. Any one of a selection of events such as deficiency of men or stores, drydocking etc. might activate the period clause. Normally, period clause would only cease to operate when the ship was restored to a fully efficient state, capable of providing the service immediately required of it. Generally, restoration of partial efficiency of the ship is insufficient to satisfy this requirement. Period clause involves little difficulty in application, provided that the occurrence of the specified events is readily ascertainable. For example, when time was lost as the result of defective loading equipment, it was held that the operation of a period clause was not limited to working hours, but that no hire was payable for the entire time the charterers were deprived of the use of the equipment and that it was immaterial that loading would not have taken place because of strikes, bad weather or unavailability of cargo.
Net Loss of Time Clauses merely provides that hire is not payable for time lost as the result of the occurrence of one of the specified events. For example, in Baltime Charter-party Form (Clause 11A), ‘no hire to be paid in respect of any time lost thereby during the period in which the ship is unable to perform the service immediately required’. Prima facie such wording should mean that hire does not cease to be payable merely on the occurrence of one of the specified events but only if, and to the extent that, time is lost as a result. This is particularly important in the case of partial efficiency of a ship.
For example, in the event of the breakdown of one of several loading cranes, or on the discovery of a speed deficiency. Under the period type of off-hire clause, the obligation to pay hire will resume once the ship becomes efficient and full use is restored to the charterer. As a result, where a ship has been compelled to deviate for repairs, the expense of making up lost ground once the repairs have been completed will fall on the charterer in the absence of provision to the contrary in the charter-party. A similar result apparently follows in English law in the case of the net time lost type of clause, despite the fact that the time taken to make up lost ground would appear to fall within the concept of any time lost as the result of the occurrence of the specified event. Recent cases would suggest the existence of a wider principle preventing the deduction of any time lost under such a clause, once the full operating efficiency of the ship has been restored. Marika M case where a ship went off-hire on running aground, it was held that the charterer could not deduct time lost waiting for a berth after she had been re-floated, even though it was the direct consequence of the original grounding. Express provision for such contingencies can be made in the off-hire clause itself such as BIMCO’s standard tanker time charter party INTERTANKTIME 80 (clause 20).
Off-Hire in Time Charter Forms
Standard forms of time charter invariably include a clause providing that hire is not payable by the charterer during any period when full use of the ship is not available to him because of an accident or deficiency falling within what might broadly be termed the shipowner’s sphere of responsibility. The precise events which take the ship off-hire and the period for which hire is not payable vary with each form of charter and are dependent on the wording of the relevant off-hire clause. Normally the range of events which will take a ship off-hire are listed in an off-hire clause of this type.
Occasionally, however, a series of mini off-hire clauses covering particular events such as speed deficiency or drydocking, are scattered throughout the charterparty and these may cause inconsistencies and apparent contradictions unless clearly cross-referenced to the main off-hire clause. The operation of the standard clause is triggered merely by the occurrence of one of the specified events irrespective of any fault on the part of the shipowner. Being a ‘no fault’ clause, its provisions are strictly construed by the courts, and the burden of proof rests firmly with the charterer when seeking a suspension of the hire. In the words of Bucknill LJ, ‘I think he must bring himself clearly within the exceptions. If there is a doubt as to what the words mean, then I think those words must be read in favour of the owners because the charterer is attempting to cut down the owners’ right to hire.’
On the other hand, the operation of the clause is unaffected by exceptions or force majeure clauses in the charterparty, although other provisions may specifically exclude the operation of the clause in certain circumstances, such as where the relevant event is caused by the charterer’s negligence. There is some authority for suggesting that the clause will not operate where the specified event results from a breach of contract by the charterer though, even if the ship did go off-hire in such an event, presumably the owner could include the loss of hire in his claim for damages for breach. The standard off-hire clause frequently concludes with the phrase, ‘or by any other cause preventing the full working of the ship’. Authority restricts such ‘other causes’ to those which directly affect the efficient running of the ship, and excludes external events which, while delaying performance of the contract, do not relate to the physical condition of the ship or its crew. Thus delays caused respectively by an obstruction on the Yangtse river, or by a ship too heavily loaded for entry to the Panama canal, were not caught by the clause; while delay in obtaining free pratique, caused by the suspicion that a member of the crew was suffering from typhus, was sufficiently closely related to the ship’s performance to take it off-hire.
The general view is that the phrase ‘any other cause’ is not caught by the eiusdem generis rule, since in the majority of cases it would not be possible to isolate a distinct genus from the various items listed in the clause. In any event, the rule would clearly be inoperative in the frequent case where the clause is amended to read ‘any other cause whatsoever’. It also appears to be restricted to fortuitous events, so as not to include those naturally resulting from the use of the ship.
Time Charter Off-Hire Explanation
The Hire Period
The Hire Period: The period of hire runs from the time the ship is delivered to the charterers to the time of her redelivery to the shipowner. The ship may come on hire immediately, or the shipowner may be required to deliver the ship within a range of dates. This is called the laycan, and the charterer is given the option of canceling the charter if the ship is not delivered on or before the stipulated dates. The duration of a time charter reflects a period of time rather than the length of single or a number of voyages or geographical rotation. Therefore, unlike a voyage charter, a time charter has stipulations for payment of hire, delivery, redelivery, and off-hire events instead of provisions for freight, laytime, and demurrage.
Ship Hire: Hire is the payment the charterer is under obligation to pay to the shipowner. It is calculated daily and usually paid in advance, either every fifteen or every thirty days. Hire is paid from the day of delivery to the day of redelivery of the ship. The time charter party especially stipulates a time range and a geographical range when and where the ship has to start and finish her service under the said contract, the delivery and redelivery dates, and places. The time charterer pays for bunkers, so bunker volumes are recorded on both delivery and redelivery dates with further proportional settlement. In some instances, hire, unlike freight, might be subject to equitable set-off.
Off-Hire: All-time charters have an off-hire clause, under which the charterer is entitled to cease the payment of hire because he or she has been deprived of the use of the ship through no fault of his or her own. The off-hire clause provides that the ship comes off-hire when one of many listed incidents occur whereby the charterer is deprived wholly or partially of the efficient use of the ship. The list of incidents that trigger the off-hire clause generally includes a breakdown of machinery, damage to hull, deficiency or default of men or stores, dry docking or other necessary measures to maintain the efficiency of the ship. The list may be extended to cover, for example, “other accident” (BALTIME) or “any other similar cause preventing the full working of the ship” (NYPE). The rule may come into effect when a delay continues for more than twenty-four hours (BALTIME). Once the threshold is exceeded, the whole period of the delay is time off-hire. (Thus, with a delay of thirty hours under a Baltime charter party, the whole of the thirty hours is off-hire).
It is quite common in warm tropical waters for marine growth to accumulate on the ship’s plating, which can lead to underperformance in terms of speed and consumption of bunkers. The underperformance together with time lost and expenses incurred to clean the hull of the ship can lead to deprivation of the efficient use of the ship, for which the shipowner is liable.
One unfortunate event that can occur at sea is piracy. If the charterer and the shipowner want to treat the event of piracy as an off-hire event, they must express it with a specific clause in the charter party. Even if the charter party stipulates that the ship will be off-hire due to ‘any other cause’, this will not include the event of piracy. However, if it stipulates ‘any other cause whatsoever’ piracy may be included (The Saldanha, 2010).
Ship Off-Hire in Time Charter
The off-hire clause operates as an exception to the basic rule that the charterer must pay hire continuously during the charter period. There are certain incidents that, when they occur, cause the ship to come off-hire.
The basic premise is that the charterer is deprived of the efficient use of the ship through no fault of his or her own, therefore he or she is not obliged to pay hire during that period. The incidents are limited to only those that hinder or prevent the efficient working of the ship (The Appollonius, 1978).
The incidents that are expressly stipulated in off-hire clauses include breakdown of machinery, damage to hull, deficiency or default of men or equipment, and dry docking or other measures necessary to maintain the efficiency of the ship.
The BALTIME extends the cover by stating other accident and the NYPE by indicating “any other similar cause preventing the full working of the ship.
The off-hire clause comes into effect after the lapse of a certain period of time. For example, the BALTIME states that the ship will go off-hire if the delay caused by any of the listed incidents continues for more than twenty-four hours, and the time of off-hire begins to count from the moment the efficient working of the ship ceases.
In the Captain Stefanos (2012), the commercial court considered whether the amended clause 56 of NYPE46 indicating “capture/seizure … by an authority” was to be construed as an off-hire period when the ship was captured by pirates and held for forty-five days. The court found in favor of the charterers, indicating that piracy was an off-hire event given that it constituted a “capture/seizure” which was not required to emanate “by an authority.” Hence parties should pay a great deal of attention to the grammatical structure and syntax of a clause, and the person to whom the risk of piracy is allocated should be clearly stated.
Contrary to this decision, in The Saldanha (2011) the court relied on another clause (40) of the NYPE46, which was different in some respects to clause 56 and which held that the ship was on-hire during the detention by pirates.
In the realm of time charterparties, the Off-Hire Clause, alongside other contractual provisions, delineates the conditions under which the ship is rendered off-hire and the corresponding reduction in hire payment.
Off-Hire Clauses and their accompanying circumstances are distinct from a broader clause titled On-Hire Survey and Off-Hire Survey. On-Hire Survey and Off-Hire Survey addresses survey procedures aimed at ascertaining pertinent factors like bunker (fuel) quantities onboard, as well as any visible damages when the ship is handed over to the charterers and upon its subsequent redelivery to the shipowners. The reference to off-hire pertains to the exact moment when the ship’s hire is permanently discontinued under the specific time charter containing the said clause.
Ship Off-Hire Clause may also be known, in some charterparties, as the Suspension of Hire Clause.
The implications of the off-hire provisions in different time charters can vary concerning the Charterer’s obligation to pay hire. The period during which no hire is payable may commence either from the occurrence of the event itself or from an agreed-upon time following the event.
New York Produce Exchange Form and Off-Hire Clause
According to the New York Produce Exchange Form, the Off-Hire Clause stipulates that if there is a loss of time, due to one of the agreed-upon reasons, that hinders the full operation of the ship, the payment of hire ceases for the duration of the lost time.
The phrase Loss of Time holds particular significance. For instance, if there is a main engine breakdown, but the ship is merely awaiting a berth outside a port, it does not fall under the category of off-hire. The breakdown must genuinely hinder the ship’s full utilization at the time of the incident. Waiting for a berth does not constitute active use by the charterer. The charterparty specifies that the payment of hire is suspended during the time lost.
It is noteworthy that all the time lost to the Charterers, including consequential loss of time, can be treated as off-hire, even if the ship is subsequently restored to its non-off-hire condition. This type of off-hire clause is referred to as a Net Loss of Time Clause.
BALTIME Time Charterparty Form and Off-Hire Clause
In the BALTIME Time Charterparty Form, the Suspension of Hire Clause declares that if certain circumstances impede or prevent the ship’s operation for more than 24 hours:
“…no hire shall be paid for any time lost during the period in which the ship remains unable to fulfill the immediate service requirements.”
The LINERTIME Suspension of Hire clause closely mirrors the provisions of the BALTIME clause. These clauses are also considered Net Loss of Time Clauses, but they include a threshold of an agreed-upon number of hours. Beyond this threshold, the ship is considered off-hire, and the non-payment covers any time lost from the event causing the off-hire. For instance, if there is a main engine breakdown lasting 18 hours, the threshold is not crossed, and there is no off-hire. However, if the breakdown persists for 50 hours, the threshold is exceeded, and the off-hire is calculated from the time of the breakdown, encompassing the entire 50-hour duration, not just 50 minus 24 hours.
New York Produce Exchange (NYPE) Form and Ship Off-Hire Clause
The NYPE 1946 Form (Clause 15) provides for a simple Net Loss of Time Clause as follows:
“In the event of 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…. or by any other cause preventing the full working of the ship, the payment of hire shall cease for the time thereby lost.”
Time charters invariably delineate the stipulated period during which a charterer may exploit the commercial endeavors of the ship and determine the hire rate payable to the owner. Consequently, any potential delays are borne by the charterer, who must, in the absence of an explicit provision, continue remitting the agreed-upon hire. To address this issue, most time charters incorporate an off-hire clause, in one form or another, to elucidate situations when the charterer is not obligated to pay the agreed hire rate.
The prerogative to declare a ship off-hire rests solely on contractual grounds. It is incumbent upon the charterer to fulfill the criteria specified in the off-hire clause to legitimately deduct hire charges. Should the charterer unlawfully withhold payment, the owner may seek damages and possibly withdraw the ship from service.
With the shipping market in a perpetual state of change, there has been an escalation in off-hire disputes, particularly among charterers seeking to economize on expenses, especially in the dry-bulk trade.
The provision pertaining to the loss of time in this context is commonly acknowledged as being favorable to the shipowner, as it necessitates the charterer to demonstrate both the occurrence of an off-hire event and the Actual Time Lost.
In contrast, a clause on off-hire periods, as exemplified in the Shelltime 3 Form, is considered more beneficial to the charterer. Under this arrangement, the ship is deemed off-hire as soon as the off-hire event begins, and the hire payment is suspended until the ship is once again fully operational. In this case, there is no requirement to separately calculate the duration of net time lost.
Is the ship’s full working hindered, wasting valuable time?
Under the New York Produce Exchange (NYPE) form, the initial query to address regarding a Charterer’s claim for off-hire is whether the ship’s complete operation has been obstructed. If not, there is no need to further examine if an off-hire event has occurred. Determining whether the ship’s full operation has been impeded will always be a matter of fact.
However, case law suggests that the explicitly listed causes and the phrase “any other cause” limit the Charterer’s ability to declare the ship off-hire only to circumstances that directly affect the ship’s operation, such as internal mechanical problems.
Using an unamended New York Produce Exchange (NYPE) form, a Charterer typically cannot declare the ship off-hire for an event that is entirely external. This was the situation in Court Line v Dant Case, where the ship was delayed due to a blockage in the river. The court ruled that the Charterer could not declare the ship off-hire as it remained fully capable of performing the required service.
To fall within ship off-hire clause, a Charterer must also demonstrate that the ship was unable to fulfill its actual orders, not merely what it may have hoped or expected those orders to be. This point was addressed in The Berge Sund Case, where the Charterer attempted to declare the ship off-hire for the time spent cleaning the ship’s tanks after carrying a defective cargo of butane. The court concluded that the ship was not off-hire, as the service required of the ship at the load port was not an immediate loading of another cargo. The actual service required was further cleaning, and thus, the ship remained on hire.
However, this rule cannot be interpreted too rigidly. In the Clipper Sao Luis Case, the Charterer considered the time spent fighting a fire in one of the ship’s holds as off-hire. The Shipowner argued that the ship was indeed performing the required service by remaining at the quayside while the fire was dealt with. Nonetheless, the court found this argument to be wholly unreal and held that the ship was unable to provide the service then required, which was to sail for Itajai.
Occasionally, standard operations may take a bit longer than expected, and a Charterer cannot claim off-hire merely because the operation was challenging to execute. In The Mareva A.S. Case, the discharge operation took longer than usual due to damaged cargo. Here, the ship was not “fully prevented from working.” The ship remained capable of performing the required service at all times, albeit it took longer than initially anticipated.
A similar principle can be applied to delays during a ship’s voyage caused by natural obstacles: “A ship is not off-hire just because she cannot proceed upon her voyage because of some physical impediment, like a sandbar, or insufficiency of water, blocking her path.”
However, there can be a somewhat artificial distinction between what is perceived as an internal versus an extraneous cause hindering the ship’s full operation, and the traditional approach was criticized by Rix J. in The Laconian Confidence Case. In The Laconian Confidence Case, the ship experienced an 18-day delay due to a “lengthy and remarkably bureaucratic procedure” followed by the local authority after discovering a small quantity of cargo residue after discharge operations. The court had to decide whether the “full working of the ship” had been prevented in circumstances where the ship was fully efficient and capable of performing the next required service. The judge held that the ship did not necessarily have to be inefficient itself. A ship’s operation could be impeded by legal as well as physical means, by outside as well as internal causes. Therefore, it appears that a ship can be prevented from fully working due to an extraneous event, but as discussed below, it can only be placed off-hire if the clause is amended to include the words “any cause whatsoever.”
Ship Off-Hire Events
Once it is ascertained that the complete functionality of the ship has been impeded, the subsequent query to address is whether the circumstances surrounding the incident have arisen due to a specified event within the confines of the off-hire clause. Let us now examine the causes specifically enumerated in the New York Produce Exchange (NYPE) form (Clause 15) in sequential fashion.
1- Inadequacy of Crew Members:
The connotation of the expression Deficiency of Men has been narrowly construed by the judiciary. In The Ilissos Case, the ship experienced a delay because the officers and crew refused to sail unless they were part of a convoy. The court determined that the ship was still on hire since there was no numerical insufficiency, but merely a lack of willingness to work, which did not fall within the scope of the clause. To address this issue, a Charterer will often introduce the phrase ‘or default’ into the New York Produce Exchange (NYPE) form to encompass this circumstance within the ambit of the off-hire clause. Additionally, it is noteworthy that the term “men” should be interpreted to mean officers and crew members, excluding third parties.
2- Breakdown of Hull, Machinery, or Equipment:
The most common scenario arises when a ship requires repairs to its engines or generators. The off-hire clause is interpreted quite literally and pragmatically by the courts. For instance, the case of Giertsen v Turnbull in the early 20th century serves as authority for the proposition that a breakdown occurs only when the condition of a ship’s machinery deteriorates to the extent that it becomes necessary to interrupt the voyage and seek repairs.
3- Detention due to Average Accidents to Ship or Cargo:
For a ship to be considered detained, there must be more than a mere delay. Therefore, if the delay is caused solely by cargo operations, it will not render the ship off-hire. Conversely, if the ship is involved in an accident resulting in a delay, it will be considered off-hire. It is essential to note that the term ‘average accident’ does not refer to general average but rather to an unexpected occurrence.
Any Other Cause Preventing the Full Working of the Ship:
Lastly, New York Produce Exchange (NYPE) Form (Clause 15) includes the standard catch-all provision of any other cause. At first glance, this provision might seem to encompass all other fortuitous events, but this is not the case. It is an established principle of English law construction that this sweeping provision must be interpreted to refer to the same types of causes as those previously mentioned in NYPE Form (Clause 15) (the ejusdem generis rule). Therefore, only other similar causes will fall under its purview.
The implementation of this rule prevented the ship from being deemed off-hire aboard the Laconian Confidence. Once it was established that the ship’s full operation had been affected, the court examined whether the incident fell under the category of “any other cause.” It was determined that the causes listed in New York Produce Exchange (NYPE) Form (Clause 15) pertained only to the ship’s efficiency and its crew and, in one instance, cargo. Therefore, the intervention of the authorities, which was entirely external and unrelated to the ship’s effectiveness, meant that the ship could not be considered off-hire.
Piracy and Ship Off-Hire
In the more recent piracy case of The Saldanha, the issue was addressed explicitly. While sailing through the Gulf of Aden, the ship was seized by pirates and taken to Somalia, where it remained detained for two months. The charterer attempted to declare the ship off-hire under New York Produce Exchange (NYPE) Form (Clause 15). The court, however, considered the ship to be on hire, as none of the causes listed in New York Produce Exchange (NYPE) Form (Clause 15) were responsible for its detention. Nonetheless, the court indicated that the ship would have been off-hire if New York Produce Exchange (NYPE) Form (Clause 15) had been amended to include the word “whatsoever.”
Examples of Ship Off-Hire Events
1- Inadequacy of Crew Members (Deficiency of Men):
• Inadequate personnel to operate the ship.
• The crew’s disinclination to operate the ship (if the phrase “or default” is included).
• Crew incapacitated by illness.
2- Breakdown of Hull, Machinery, or Equipment:
- Interruption to the journey for the purpose of mending the ship’s principal engine or generators, encompassing towage and the period of waiting during the repairs.
- Disruption to the loading/unloading activities due to an issue with the ship’s cranes.
- Duration expended in the reparation of the ship subsequent to a collision.
3- Detention due to Average Accidents to Ship or Cargo:
• The ship’s movements are subject to a physical constraint imposed by a port authority due to damage to the cargo (for example, directing the ship to leave the berth until security is arranged for the storage expenses of the affected cargo).
- The Classification Society detains the ship following damage endured by the ship.
What significance does the term “whatsoever” impart?
The legal status undergoes a transformation when the New York Produce Exchange (NYPE) Form (Clause 15) is amended to include the term “whatsoever” subsequent to “any other cause.” This single word significantly broadens the scope of potential off-hire events and renders the relevant causes of delay no longer constrained to the same nature as those listed in New York Produce Exchange (NYPE) Form (Clause 15).
Nevertheless, the inclusion of the term “whatsoever” does not universally render the ship off-hire in all circumstances where there is a loss of time to the ship. So, what specific situations does it encompass?
In the case of The Mastro Giorgis, the ship encountered an arrest by cargo interests who claimed that the cargo had suffered damage during shipment. Consequently, the ship remained stranded at the port for several days, unable to proceed. The court, in its ruling, determined that the ship was indeed off-hire during the period of arrest, as the ship’s full operation had been hindered for the immediate services required. Lloyd J. elaborated that one must consider not only the physical condition of the ship but also its qualities, characteristics, history, and ownership.
Hence, it becomes evident that when the term “whatsoever” is introduced, any cause can be sufficient to render the ship off-hire, be it of physical or legal nature. However, there must be a direct connection between the cause of the time loss and the specific ship involved. Causes that are entirely extraneous and unrelated to the ship will not be adequate to declare the ship as off-hire.
Arrests and Ship Off-Hire
While arrests and seizures may fall under the purview of New York Produce Exchange (NYPE) Form (Clause 15), these circumstances could be expressly addressed through an additional off-hire clause in the charterparty. For instance, the New York Produce Exchange (NYPE) Form 1993 form specifically covers detention due to arrest in Clause 17:
“in the event of loss of time from…detention by the arrest of the ship, (unless such arrest is caused by events for which the Charterers, their servants, agents or subcontractors are
This aligns with the tacit principle of indemnification, which recognizes that a charterer is obliged to compensate an owner for any incurred loss, provided that the origin of such loss stems from their own negligence.
Charterers’ Actions and Ship Off-Hire
In the Global Santosh case, the charter was executed using an Amended New York Produce Exchange (NYPE), which included a clause regarding off-hire. This clause stated that the hire would be suspended if the ship encountered an arrest, unless such arrest was “occasioned by any personal act or omission or default of the Charterers or their agents.”
In this instance, the ship experienced delays and was arrested during the discharge process due to the actions of the sub-charterer and sellers of the cargo. They took this action to secure their claim for demurrage against the cargo receivers, based on a completely separate sales contract.
The Court of Appeal ruled that the term Agent should be broadly interpreted to encompass any party to whom the Charterer had entrusted the performance of its obligations under the charterparty, including the loading and discharge of cargo. These entities were referred to as delegates, which could include sub-charterers, sub-sub-charterers, and even shippers or receivers. Consequently, the court concluded that the ship remained on hire throughout the period of delay and arrest at the port of discharge.
While the decision is currently under appeal to the Supreme Court, it has garnered widespread acceptance as a correct and practical commercial approach to allocating responsibilities between the owner and charterer under the New York Produce Exchange (NYPE).
Pitfalls Off-Hire Clauses
In a time charter, the burden of delay primarily falls upon the Charterers. In the absence of any contradictory terms, the charter party specifies the duration for which they have the right to utilize the ship for commercial purposes. Simultaneously, the Shipowner is entitled to receive hire throughout that period and regain control of the ship after its expiration.
Consequently, Time Charterers are keen on incorporating clauses that define their obligations during the time charter. The most prevalent safeguard against risk is the Off-Hire Clause.
Purpose of Off-Hire Clause
The purpose of Off-Hire Clause is to permit the Charterer to halt hire payments if any delays occur in the ship’s operations. Nonetheless, the general rule dictates that hire is payable in full and in advance unless there is an Explicit Clause suggesting otherwise, placing the onus on charterers to prove their entitlement to withhold hire under specific circumstances.
If a Charterer wishes to argue that hire is not due to delays, Charterer must clearly align themselves with the provisions of the clause (The Mareva AS 1977 Case).
Failure to do so would result in non-compliance with the charter’s stipulations, leaving the Charterer vulnerable to various remedies exercised by the Shipowner in such situations, including the possibility of terminating the charter agreement.
Types of Off-Hire Clause
Off-Hire Clauses can be categorized into two types:
1- Period Loss of Time Clause
2- Net Loss of Time Clause
For instance, the New York Produce Exchange (NYPE) Form 1946 (Clause 15), exemplifies a Net Loss of Time Clause:
“In the event of 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, drydocking for the purpose of examination or painting of the bottom, or by any other cause preventing the full working of the ship, the payment of hire shall cease for the time thereby lost.”
This clause favors the Shipowner, as only the resulting Net Loss of Time is considered off-hire.
On the other hand, the Period Loss of Time Clause, represented by Clause 21 of Shelltime 3, brings about a different outcome:
“The ship shall be off-hire from the commencement of such loss of time until she is again ready and in an efficient state to resume her service.”
Under this clause, the ship remains off-hire for the entire period it is deemed inefficient to perform the required service. As a result, even partial inefficiency leads to a complete cessation of hire, which is notably advantageous to the Charterer. Moreover, unlike the net off-hire clause, the Charterer is not obligated to prove that time was lost due to inefficiency. The ship is simply considered off-hire for that specific period.
Determining whether the ship is off-hire primarily depends on the construction of the relevant clause. If the wording is broad enough, the ship is considered off-hire, irrespective of whether the delay resulted from a breach of contract by the Shipowner. The off-hire clause operates independently of any breach of the charter by the Shipowners.
The off-hire event must meet the following conditions:
1- The off-hire event must be fortuitous and not a natural consequence of the Charterers’ orders. In The Rijn 1981 Case, the ship’s hull became fouled during an extended waiting period for loading.
In The Rijn 1981 Case, Mustill J held that “only those causes qualify for consideration which are fortuitous, and are not the natural result of the charterers’ orders, I find it hard to visualize the accumulation of marine growth during the contract service as a defect. But even if it were, the defect arose as a natural consequence of the way in which Charterers chose to employ the ship.
2- The off-hire event must not result from a breach of charter party on the part of the Charterer. For instance, in Lensen v Anglo-Soviet 1935 Case, where delay occurred due to running aground following illegitimate employment orders given by the Charterer, it was held that the ship was not off-hire, despite the words loss of time, due to damage to the hull in the off-hire clause.
Merely experiencing one of the events listed in the clause is insufficient; it must also be proven that time was lost as a consequence.
To ascertain whether there has been a loss of time, the relevant consideration is the service that the Charterers require next from the ship. This extends beyond what services the Charterers explicitly request; it pertains to whether the ship is capable of performing the next operation necessitated by the Charterer.
In The Berge Sund 1993 Case, when the chartered ship’s holds failed to pass a pre-load inspection and required additional tank cleaning to comply with Charterers’ orders for the next cargo load, the Charterers placed the ship off-hire for that period. However, Lord Justice Staughton refused to accept this and stated:
“What were the Charterer orders? They were not to load the cargo; as I have said, that was the very last thing the Charterers would have ordered. The orders were, in part expressly and at all relevant times by implication, to carry out further cleaning. That was the service required, and the ship was fully fit to carry it out.”
Hence, the relevant consideration is the actual service needed next. Nevertheless, this principle should not be taken to extremes; a ship is generally prevented from working if engaged in activities not ordinarily required by a Time Charterer, such as fighting fire. In The Clipper Sao Luis 2000 Case, Shipowners attempted to argue that the ship was not off-hire as it was performing the service then required of her after the cargo was set alight by a cigarette discarded by a stevedore. Steel J deemed this argument as “wholly unreal.”
Ship Off-Hire Causes
Once it can be ascertained that the complete operation of the ship has been hindered, it becomes imperative to investigate whether this has been instigated by any of the off-hire events outlined in the clause.
Ejusdem Generis by adding “Any Other Cause” in Time Charter Party
General terminology , for example “any other cause”, following a series of specific causes in an off-hire clause shall be construed Ejusdem Generis with the preceding specific clauses.
In simpler terms, the other cause will only be applicable if it resembles a cause of a similar nature to those that came before it in the clause. The identification of such a type may not be straightforward, but it is generally associated with the condition of the ship or the crew members. It could extend to legal or administrative actions by the port or a similar authority, as long as they are related to the condition or efficiency of the ship or crew members, or even suspected conditions.
However, “any other cause” will not encompass causes unrelated to the physical condition of the ship or the efficiency of the crew members.
In the case of Court Line v Dant 1939, the chartered ship found itself trapped in the Yangtse River during the Japan-China war due to a boom placed across the river by the Chinese forces to hinder Japanese forces’ travel. Nevertheless, the ship itself remained fully operational at all times. The Court ruled that the ship was not off-hire as it continued to be fully operational and capable of providing the required service; the cause of the delay, namely the boom, was entirely external to the ship.
In Cosco Bulk Carrier Co Ltd v Team-up Owning Co Ltd M/V Saldanha 2010 Case, the Charterer argued that the chartered ship was off-hire during the period when it was captured by Somali pirates. The relevant off-hire clause stated:
“That in the event of the loss of time […] from detention by average accidents to ship or cargo… by any other cause preventing the full working of the ship, the payment of hire shall cease for the time thereby lost…”.
Judge Gross held that the words “any other cause” are usually interpreted Ejusdem Generis or at least in a limited manner reflecting the general context of the clause. This means that the event in question should be similar to those described prior to it. The event in question, seizure by pirates, was an entirely extraneous cause, and thus, the Charterer could not benefit from the sweep-up provision.
However, the Ejusdem Generis rule does not apply when the general words are accompanied by other words such as ‘whatever’ or ‘whatsoever.’ In such instances, there is no requirement for the ‘other cause’ to be of the same type as the preceding causes.
What is Ejusdem Generis?
Ejusdem generis is a Latin phrase that literally means “of the same kind.” It is a rule of legal interpretation used to understand laws that may be ambiguous.
In legal terms, if a law lists specific classes of persons or things, then refers to them in general, the general statements only apply to the same kind of persons or things specifically listed.
For instance, if a law applies to “cars, trucks, and other motor vehicles,” the “other motor vehicles” would be understood under ejusdem generis to include things similar to cars and trucks, such as motorcycles or vans, but not something dissimilar like boats or airplanes.
This rule helps ensure that laws are interpreted in a manner consistent with their apparent intent, and prevents the broadening of their scope unintentionally. It provides a measure of predictability and precision to legal interpretation, but like any rule of interpretation, it isn’t absolute and other factors may override it in certain contexts.
Complete Functioning of the Ship
Most conventional off-hire provisions often culminate with the expression impeding the full functioning of the ship. The jurisdiction confines such “other factors” and also all the preceding enumerated factors to those directly impacting the operation of the ship such as internal, usually mechanical factors. To put it differently, the courts would declare the ship off-hire only if the specified cause or any other cause had, indeed, affected the full functioning of the ship.
For instance, in The Mareva AS 1977 Case, the discharge of the ship was delayed by fifteen days due to the fact that her cargo was damaged, average accident to cargo, by leakage through defective hatch covers, making it more challenging to discharge. However, the ship herself remained impeccably efficient in performing the discharge function. Consequently, it was determined that the ship was not off-hire as the average accident to cargo had not impeded the full functioning of the ship.
On the other hand, external factors, such as legal or political reasons, could trigger the off-hire provision as long as they impose restrictions that affect the nature of the ship itself. In The Apollo 1978 Case, for example, the crew members of the chartered ship was suspected of having typhus, and the ship was not permitted to discharge under the health regulations of the port of discharge until she had been fully disinfected. It was concluded that the ship herself was hindered from functioning and was therefore off-hire.
In The Mastro Giorgis 1983 Case, the chartered ship was prevented from sailing by an arrest placed by the owners of cargo damaged during the course of the voyage. The Court held that the ship was off-hire, and Lloyd J said:
“One must have regard not only to the physical condition of the ship but also, in the words of the arbitrators, to her qualities and characteristics, to which I would also add, her history and ownership… The arrest was, in my view, directly attributable to the history, if not the condition, of this particular ship.”
It should be noted that in both The Apollo Case and The Mastro Giorgis Case, the relevant off-hire provision had included the word “whatsoever” to obviate the Ejusdem Generis rule.
A fine line exists between events that are considered attributable to the characteristics of the ship itself and those considered extraneous. A good example in this context is The Roachbank 1987 Case. There, the chartered ship picked up a number of Vietnamese refugees from another ship in distress, but the authorities in Taiwan refused to allow the ship to enter their ports while the refugees remained on board. The charterers placed the ship off-hire, but the Court disagreed. It was established that neither the presence of the refugees on board nor their number prevented the ship from entering the port to load her cargo. The ship herself remained perfectly fit and efficient to perform the service required of her, which was to enter Kaohsiung and load cargo.
These cases illustrate the fact that the distinction between internal and extraneous causes is often artificial. Accordingly, it is perhaps unsurprising that the traditional rule was criticized by Rix J. in the more modern case of The Laconian Confidence 1997 Case. The ship was delayed for eighteen days when port authorities in Bangladesh, following the discharge of a bulk cargo, imposed a lengthy and bureaucratic procedure for the disposal of some 15 tons of residue remaining on board. Neither Shipowners nor Charterers anticipated that such a delay could occur; the Arbitrators’ Award, from which Charterers were appealing, contained the following statement:
“Eventually, the authorities allowed the rejected residues to be dumped at a designated ocean position. We permit ourselves to comment that we do not see why – had the authorities acted realistically and efficiently – such permission/ruling could not have been given within a few hours of the end of discharge of all the sound cargo, so dumping might have taken place on, say, 27 May. In the event, and only after a lengthy and remarkable bureaucratic procedure insisted upon by the authorities, this residual tonnage was permitted to be dumped on 13 June.”
The question was whether the authorities’ intervention was “any other cause preventing the full working of the ship.” The Court first had to decide whether, in fact, the full working of the ship was prevented: if so, but only if so, the Court could then decide whether intervention by the authorities was within the scope of the phrase “any other cause” in the off-hire provision.
Charterers argued that the authorities’ refusal to permit the ship to leave, pending disposal of the damaged residue, did indeed prevent the full functioning of the ship. In support of that submission, they relied, inter alia, upon the case of the Mastro Giorgis. Shipowners claimed that the ship was not off-hire because she was fully capable of performing the service or services contracted for under the charterparty. They distinguished the Mastro Giorgis Casease, and others cited by Charterers, and relied upon decisions to the contrary, including the Roachbank Case.
The Judge Justice Rix had to resolve the apparent conflict between these cases. The essential question was whether the ship could be off-hire if fully efficient in herself to perform the next service required. The Judge Justice Rix held that the phrase “preventing the full working of the ship” did not require the ship to be inefficient in herself and that its working could be prevented by legal as well as physical means, by outside as well as internal causes. There was nothing in the authorities that justified or mandated the judicial gloss, which resulted in a narrower interpretation of the words. Accordingly, the ship could indeed be prevented from full working by the wholly extraneous intervention of the port authorities.
That answered the first question, which then led to the second: was the event itself contemplated by the phrase “any other cause”? The Court concluded that, without the addition of the words “whatsoever,” those words had to be read Ejusdem Generis, to include only events similar to those specifically listed under the off-hire provision. Since the listed causes all related to the physical condition or efficiency of the ship, the phrase “any other cause” could only encompass a comparable physical event, and not an entirely external or legal one. The ship thus remained on hire. However, if the clause had been amended to read “any other cause whatsoever,” then a wider interpretation would have been justified, and the interference of the port authorities, an external event, would have fallen within the scope of the clause.
The duration that necessitates deduction due to an off-hire occurrence will rely on the phrasing of the off-hire clause. There are two primary types of off-hire clauses:
1- Period Loss of Time Clause
2- Net Loss of Time Clause
In a Net Loss of Time Clause, Charterers must demonstrate both a specific timeframe during which the ship was unable to function and that the venture was genuinely delayed. In The HR Macmillan 1974 Case, the Court determined that the breakdown of one of the ship’s cranes would not lead to off-hire if the remaining cranes could perform the required discharge work without any overall time loss.
However, the obligation to pay hire is only suspended during the ongoing loss of time. The prevailing view among authorities is that as soon as the ship’s operation is no longer hindered, it will be back on hire.
This matter of net off-hire clauses and the amount of time considered “lost” has recently been examined in both arbitration and another ATHENA case by the Court of Appeal.
The former, an LMAA (London Maritime Arbitrators Association) decision concerns the rider clauses to an ASBATIME Charter Party Form 1981 which stated:
ASBATIME 1981 Clause 66: “Without prejudice to any of their other rights under this charter, it is understood that charterers shall be entitled at any time to carry out ultrasonic hose or other testing of the ship’s hatch covers […] The cost and time for such testing shall be borne by charterers unless any deficiency is found, in which case, the same shall be for owners’ account and the ship shall be off-hire for any time lost thereby […] and other costs incurred which are directly related expenses as a result of such deficiency shall be for the owner’s account.”
ASBATIME 1981 Clause 91: “Ship’s holds on delivery to be completely clean […] and in every way ready and suitable to load charterers’ intended cargo(es). If the ship is rejected at loading ports by charterers’/shippers’ surveyors or competent authorities, then the ship to be off-hired from the time of failure until all holds pass re-inspection by them and any time lost and all expenses caused thereby to be borne by owners.”
Shortly after arriving at the loading port, the holds and hatch covers failed an inspection by the shippers’ surveyor. The loading berth was free at the time of the ship’s arrival.
Remedial work was conducted, and following another inspection, the ship passed two days later. A Notice of Readiness (NOR) was then tendered. By that time, the berth was occupied, so loading did not commence until another two days later.
It was agreed that the ship was off-hire until it passed the inspection. Charterers claimed that it should also be off-hire for additional time lost due to the failed inspections; alternatively, they should be able to recover damages for that time.
The Tribunal disagreed. It found that Charterers’ claim for additional off-hire failed. ASBATIME 1981 Clauses 66 and 91 were Net Loss of Time Clauses, with the critical words being “any time lost thereby.” If Charterers had been able to utilize the ship while the holds and hatches were being worked on, between failing the first inspection and passing the second, the ship would have remained on hire.
The alternative damages claim also failed. Charterers’ assertion that the ship could have berthed immediately after arrival if it had passed the first inspection was based on speculation, not substantiated fact. Even if that assertion was correct, however, ASBATIME 1981 Clauses 66 and 91 provided a complete code regarding damages resulting from the relevant events. Those damages were clearly limited to the period of the named off-hire event.
A period-type clause designates the start and end of any period for which hire is suspended by linking them to the occurrence of specified events. Therefore, while any one of a selection of events, for example deficiency of crew or stores, might activate the clause, it would usually only cease to operate when the ship was restored to a fully efficient state, capable of immediately providing the required service.
In line with the first instance decision of The Doric Pride 2005 Case, period inefficiency clauses come into effect when a ship becomes, even partially, inefficient in performing the task at hand, irrespective of whether a loss of time has actually been experienced.
In this case, a ship was chartered to carry a cargo of soya beans from the US Gulf to South Korea. Charterers instructed the ship to proceed to New Orleans to load. Upon arrival, it was deemed by the US Coast Guard (USCG) to be a High-Interest Ship, a term used to describe ships calling for the first time in America post 11th September 2001. High-Interest Ship status meant the ship was prohibited from entering the port before inspection. The US Coast Guard (USCG) ordered the MV Doric Pride to proceed to a specific location outside the United States waters to await inspection. The ship arrived there on the morning of 20th February, anticipating that the inspection would take place the following day. However, a serious collision between two ships early on 21st February led to the closure of the Southwest Pass of the Mississippi River until 25th February and the MV Doric Pride being moved to another waiting location.
Clause 85 stated: “Should the ship be captured or seized or detained or arrested by any authority or by any legal process during the currency of this charter party, the payment of hire shall be suspended until the time of her release, and any extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for Owners’ account, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the charterers or their agents or by reason of cargo carried or calling port of trading under this charter.”
Citing Clause 85, charterers contended that the ship was off-hire as the ship had been detained by the US Coast Guard (USCG). Among other things, Shipowners sought to argue that the effective cause of the delay was not the US Coast Guard (USCG) order for the ship to remain at Southwest Pass NW Approach Safety Fairway, but the closure of the river following the collision on 21st February between two other ships. The Court rejected this argument on the basis that Clause 85 was a period off-hire provision, and it was not necessary for the Court to look beyond the fact that as long as the detention lasted, the ship would be off-hire.
In summary, as a Shipowner, Net Off-Hire Clauses are generally more favorable, and the opposite holds true for Charterers. By way of example, The MV Doric Pride above would have resulted in a very different outcome if Clause 85 had not been a Period Off-Hire Clause but had required charterers to demonstrate a loss of hire due to the detention. The subsequent closing of the Mississippi would have severely curtailed charterers’ off-hire claim.
It is essential to remember, whether as Shipowner or Charterer, that the consequences of wrongly deducting hire have the potential, depending on the charter terms, to be draconian. The suspension of services or even the withdrawal of a ship can be the ultimate penalty, and the ramifications for either a Shipowner, if the charter service is wrongfully suspended, or a Charterer if hire is not paid when due, can be substantial. As ever, the managers encourage members to seek advice when faced with off-hire disputes.
In conclusion, the significance of time as it pertains to off-hire events holds great importance in charter parties. The intricacies of Net and Period Off-Hire Clauses, as demonstrated in the cases discussed, underline the need for clear and precise contractual language. Both Shipowners and Charterers must be cognizant of their rights and obligations under these clauses, as any misinterpretation or mishandling of off-hire situations can have far-reaching consequences. A comprehensive understanding of the charter terms and the guidance of legal experts can help navigate potential disputes and ensure a smooth operation of maritime ventures.