Charterparty - Off-hire clause

Osmium Shipping Corporation v Cargill International SA: Queen's Bench Division, Commercial Court (Mr Justice Cooke): 13 March 2012

The instant proceedings concerned a preliminary issue arising out of the hijacking of a vessel off the coast of Somalia in 2008.  The agreed facts were that the parties had entered into a charterparty on an amended New York produce exchange (NYPE) (1946) form dated August 2011 in respect of the owners’ bulk carrier. The vessel was to undertake a laden voyage from South Africa to continent/Italy (intention Italy). 

On or about 29 August 2008, the charterers ordered the vessel to carry a cargo of coal from Richards Bay, South Africa, to Brindisi, Italy. They stated that the vessel would be routed via the Suez Canal. On 2 September, the vessel was delivered into the charterers’ time chartered service. It arrived at Richards Bay on 13 September, loaded a bulk cargo of about 61,000 MT of coal and left the following day, proceeding as instructed by the charterers. 

In order to transit the Suez Canal, the vessel had to sail through the Indian Ocean and therefore off the eastern coast of Somalia. On 21 September 2008, the vessel was hijacked by pirates off the coast of Somalia. For the purpose of the preliminary issue no concession was made by either party as to the legal nature of the hijacking. On 6 December, the vessel was released after the owners paid a substantial ransom to the pirates. Thereafter she proceeded initially by agreement to Bakar, Croatia, arriving on 25 December 2008 and completing discharge on 28 December. 

She then proceeded to Porto Marghera, Italy, arriving the following day and completing discharge on 2 January 2009. On 5 January 2009, she was redelivered. Arbitrators were asked to determine whether or not, on the facts as agreed, the vessel was off-hire between 21 September and 6 December whilst subject to the hijacking. 

The relevant off-hire provision was clause 56 (set out at paragraph [4] of the judgment). It was not contended that the vessel was off-hire due to the standard clause 15 of the NYPE form. The point in dispute turned on the construction of ‘capture/seizure’ in clause 56, in the context of the clause and the charter as a whole. The arbitrators held that the charterers had brought themselves within clause 56 and had thus discharged the onus of showing that there had been an off-hire event. The owners appealed.

The owners contended that the words ‘capture/seizure’ were qualified by the further words ‘by any authority’, and the pirates did not constitute such an authority. The charterers contended that the words were unqualified and a seizure by pirates was an off-hire event. The owners also relied on clauses 16, 26 and the Conwartime 2004 clause (set out at [6] of the judgment). 

They submitted that the charter, taken as a whole, particularly when regard was had to the Conwartime clause, placed the risk of piracy upon the charterers and not upon the owners, and that the off-hire clause had to be read with that business purpose and allocation of risk in mind. The appeal would be dismissed.

Off-hire provisions of a charter did not necessarily, or indeed usually, tie in with the provisions of the charter which related to breach of obligation by one party or the other. Further, standard form charters were often used with a series of ‘add-on’ special clauses which did not always fit together immaculately. 

Where there were one or more clauses which dealt with off-hire events, they had to be looked at together and reconciled, but where the charter provided for off-hire in some provisions and charterparty obligations and remedies for breach in others, the focus inevitably had to be on the off-hire clauses when determining whether the off-hire event had occurred (see [10]-[11] of the judgment).

On the true construction of clause 56, capture by pirates was a relevant off-hire event. It did not need to be carried out by any authority.  Accordingly, the arbitrators had been correct (see [33] of the judgment).

Bergesen (Sig) DY A/S v Mobil Shipping and Transportation Co, The Berge Sund [1993] 2 Lloyd's Rep 453 applied.

David Bailey QC and Peter MacDonald Eggers QC (instructed by Holman Fenwick Willan) for the owners; John Russell (instructed by Clyde & Co) for the charterers.