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Owner refused discharging against LOI- Whether off-hire or damages claim

Two LMAA arbitrators held that, under these events, the owner’s refusal to discharge against an LOI was justified; the issue of a replacement set of bills of lading was both illegal and unlawful; the replacement bills of lading claused “Clean on board” were patently unlawful; Charterers had no claim either as off-hire or damages. Owners’ claim failed for hull cleaning costs and redelivery bunker prices.

The Background

The main issues in this arbitration concerned prolonged off-hire periods caused by owners’ refusal to berth and discharge the cargo against an LOI, including deviation & stoppage without charterers’ consent. Charterers denied the owners’ claims for US$367,941.81, arguing that the owners’ unreasonable and unlawful conduct caused the vessel to suffer delays and consequently being off-hire. Additional issues related to MGO supplied due to vessel’s prolonged stay, hull cleaning and redelivery bunker prices.

The vessel was chartered under an amended NYPE Form to load consignments of steel coils from Haiphong and Ho Chi Minh City and discharge them in Mumbai and Dammam. A total of six bills of lading were issued by agents at the two Vietnamese ports, with remarks as to the condition of the cargo based on the P&I Surveyor recommendations as per charter party terms.

The charterers issued a second set of seven bills of lading for the same cargo. However, the Consignees and Notify parties differed in four replacement bills, the three initial consignments were split into four, and the specific remarks by the surveyor were not included, but a more generic wording was used. Two bills of lading showed the cargo was loaded “Clean on board” and were ante-dated.  

Consequently, the owners made clear to the charterers that the cargo would only be discharged against the presentation of the original bills of lading, and the owners refused to allow the vessel to berth. The ship arrived at Mumbai on 25 March 2011, berthed on 21 April, that commenced discharging against surrender of the original set of the bills of lading and discharging completed on 25 April. Then, the ship stayed at OPL Dubai from 29 April, when she arrived, until 13 May she sailed for Dammam.

The parties contentions

The charterers’ primary case was that the owners should have discharged the cargo immediately upon the vessel’s arrival at Mumbai, following their instructions. In the alternative, the owners should have agreed to discharge the cargo on 5 April 2011, as soon as the charterers confirmed that the original bills of lading would be returned at Mumbai. Owners contended that the LOI fell short of their legitimate demand that delivery takes place against the original set rather than the replacement set, which misdescribed the shippers of the cargo and included different remarks.

Charterers accused the master of failing to obey their orders in breach of clause 8. Owners responded and justified their position by reference to the general law principles:

“It must be the duty of the Master to act reasonably upon receipt of orders. Some orders are of their nature such that they would, if the Master were required to act reasonably, require immediate compliance. Others would require a great deal of thought and consideration before a reasonable master would comply with.”(Midwest Shipping Company Limited v D. I. Henry (Jute) Limited [1971] 1 Lloyd’s rep 375, Donalson, J) and the Court of Appeal in the Houda [1994] 2 Lloyd’s Rep. 541 where it was similarly held that it was reasonable of the Master to refrain from delivering the cargo without the production of original bills of lading notwithstanding instructions from the charterers to do so.

The decision

The tribunal consisted of two LMAA arbitrators who decided the issue on four sets of submissions: Claim, Defence, amended Defence, and Reply; the charterers failed to serve their rejoinder despite an order, followed by a peremptory order from the tribunal.

Held, that the entire case, in reality, turned upon whether or not the owners acted properly and reasonably when confronted with these events. The issue of a replacement set of bills of lading was both illegal and unlawful (Standard Chartered Bank v Pakistan National Shipping Corporation and Another [1998] 1 Lloyds Rep. 684, The Atlas [1996] 1 Lloyds Rep. 642, applied). The owners were entitled, as they claimed, to expect that the specific remarks and not others of a generic nature, such as those contained in the replacement set of bills of lading, be inserted in the relevant bills. Therefore, the replacement bills of lading claused “Clean on board” were patently unlawful.

Relying on their experience, the tribunal agreed with the owners that India and Saudi Arabia were jurisdictions that particularly favoured their local traders/ receivers and that, accordingly, the owners were entirely justified in fearing heightened risks of delays and penalties arising from possible misdeliveries, fraud or cargo claims. Accepting the charterers’ requests, the owners risk prejudicing their protection and indemnity insurance cover.

Accordingly, there was no just cause, either under the terms of the charter party or in damages resulting from breach of charter, for the vessel to be placed off-hire either in Mumbai or OPL in Dubai, where the ship waited until the problems with the Dammam cargo were resolved.

MGO Supply

The vessel deviated and stayed at off-port Dubai to lift MGO to perform the voyage to Dammam safely. The ship was running low on MGO due to her prolonged stay at the previous port due to BL issues. The charterers accepted the cost by crediting the entire quantity’s value based on the delivery prices (885 USD/ PMT) and sought reimbursement of the remaining balance on redelivery by applying posted Dammam price (995 USD/PMT). The owners claimed the cost of MGO lifted in Dubai based on 1,016 USD/pmt, which was the acceptable way.

Redelivery bunkers

The clause stated, “as per actual place prices on the time of delivering, the same – for the cost of bunker on redelivery”. Charterers applied posted prices for Dammam (685usd/PMT) without any supporting evidence, and owners applied posted prices for Kuwait (639 USD/ PMT) that was about 250 miles distant. The tribunal rejected the owners’ approach and accepted the charterers’ applied price for calculating the value of bunkers on redelivery.

Hull Cleaning

The tribunal rejected the owners’ claim for hull cleaning due to the prolonged stays at Mumbai and OPL Dubai as a result of the charterers’ breaches. The owners have failed to prove their case by submitting proper evidence. In particular, when the vessel had last drydocked, what compositions had been used to protect the hull, how its performance had been affected and the like. Moreover, no invoices in support of the alleged cost of cleaning were produced or for superintendents and legal fees.

Costs and interest

The owners were entitled to their recoverable costs as well as to the fees and costs of this arbitration, which follow the event in the normal manner. The owners were entitled to compound interest on the amount awarded from the date of redelivery, and compound interest of their recoverable costs to run from the date of this Award.

Final Award, 2 April 2012

This website removes the names of the parties involved in this or other awards. The reader can find more details on Jus Mundihttps://jusmundi.com/en/conflict-checker. These awards mostly come into the public domain through enforcement under the NYC 1958.

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